Fitch Affirms 3 Korean Key Policy Banks at 'AA-'; Outlook Stable

Industrial Bank Of Korea

08/07/2016 07:56

(The following statement was released by the rating agency)

SEOUL, July 08 (Fitch) Fitch Ratings has today affirmed the 'AA-' Long-Term 
Issuer-Default Ratings (IDRs) of South Korea's three key policy banks - Korea 
Development Bank (KDB), the Export-Import Bank of Korea (KEXIM), and Industrial 
Bank of Korea (IBK). The Outlooks are Stable. At the same time, Fitch has 
withdrawn the Long-Term Local-Currency Issuer Default Rating of KEXIM. A full 
list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS 

IDRS, SUPPORT RATING, SUPPORT RATING FLOORS AND SENIOR DEBT

The three policy banks' IDRs and Support Rating Floors are equalised with the 
IDRs of the South Korea sovereign (AA-/Stable). The ratings, along with the 
Support Ratings (SRs) of '1', reflect Fitch's view that there is an extremely 
high probability of the state support to the banks, if needed. 

This view is underpinned by critical policy functions undertaken by these policy 
banks, the government's de-facto solvency guarantees stated in their respective 
establishment legislation and the government's controlling ownership on them. 
The legislation for the establishment of each of the three banks requires the 
government to make up for any losses incurred by the banks but not covered by 
their reserves.

KDB is mandated to provide credit for fostering local industries, developing 
social infrastructures and resources, and supporting corporate restructuring. 
Its policy role in recent years has included bailing-out troubled corporates 
facing financial difficulty. KDB is 100% directly owned by the government.

KEXIM's policy role is to supply export, import and overseas investment credit 
to corporates. KEXIM serves as an export-credit agency and is the most proactive 
Korean bank in providing large loans and guarantees for long-term overseas 
construction and manufacturing projects. KEXIM is effectively under the 
government's full ownership (70.0% owned by the government, 17.6% through KDB 
and 12.4% through Bank of Korea).

IBK's policy objective is to contribute to building up an efficient credit 
system for viable SMEs. IBK's policy role stands out when the system is under 
stress as the bank extends more credit to SMEs while commercial banks tend to 
reduce exposures to them. The government owns a controlling stake in IBK (50.6% 
directly, 8.8% through KDB and 2.3% through KEXIM). Fitch believes the 
government is committed to keep a majority stake of the bank.

The Stable Outlooks on three policy banks' Long-Term IDRs reflects that of the 
South Korea sovereign.

The ratings on the senior debt, medium-term note programmes (for KDB and KEXIM), 
and US commercial paper (CP) programme (for KDB) of the policy banks are the 
same as the respective banks' Long-Term and Short-Term IDRs as they constitute 
direct, unconditional, unsecured and unsubordinated obligation of the banks. The 
rating on KEXIM's senior market-linked notes also reflects the 
principal-protected nature of the notes while the coupons vary based on market 
indicators.

Fitch has affirmed and withdrawn the Long-Term Local-Currency Issuer Default 
Rating on KEXIM as it is no longer considered by Fitch to be relevant to the 
agency's coverage because the bank has no plan to issue local-currency debt in 
offshore markets.

SUBSIDIARY AND AFFILIATED COMPANY 

Korea Development Bank, NY Branch is a branch of KDB. The rating on the branch's 
US CP programme is aligned with KDB's short-term debt rating because the CP 
programme's rating is sensitive to the same factors that might drive a change in 
KDB's short-term debt.

RATING SENSITIVITIES

IDRS, SUPPORT RATING, SUPPORT RATING FLOORS AND SENIOR DEBT

The three key policy banks' IDRs, SRs, SRFs and senior debt ratings are 
sensitive to a change in Fitch's assumptions around the bank's relationships 
with the South Korea government and South Korea's rating. They would be directly 
affected by changes to South Korea's ratings or, for example, to the solvency 
guarantee under the acts that govern the policy banks' establishment. Fitch does 
not expect any significant changes to either in the near to medium terms.

SUBSIDIARY AND AFFILIATED COMPANIES

KDB NY Branch's US CP programme rating is sensitive to the factors driving KDB's 
short-term debt.

 

The rating actions are as follows: 

KDB

Long-Term Foreign-Currency IDR affirmed at 'AA-'; Outlook Stable

Short-Term Foreign-Currency IDR affirmed at 'F1+'

Support Rating affirmed at '1'

Support Rating Floor affirmed at 'AA-'

Senior unsecured debt and global medium-term note (GMTN) programme affirmed at 
'AA-'

Short-term debt (US CP programme and GMTN programme) affirmed at 'F1+' 

KDB, New York Branch

US CP programme affirmed at 'F1+' 

KEXIM

Long-Term Foreign-Currency IDR affirmed at 'AA-'; Outlook Stable

Short-Term Foreign-Currency IDR affirmed at 'F1+'

Long-Term Local-Currency IDR affirmed at 'AA'; and withdrawn

Support Rating affirmed at '1'

Support Rating Floor affirmed at 'AA-'

Senior unsecured debt affirmed at 'AA-'

Market-linked securities affirmed at 'AA-(emr)'

Euro medium-term note (EMTN) programme rating affirmed at 'AA-'

IBK

Long-Term Foreign-Currency IDR affirmed at 'AA-'; Outlook Stable

Short-Term Foreign-Currency IDR affirmed at 'F1+'

Support Rating affirmed at '1'

Support Rating Floor affirmed at 'AA-'

Senior unsecured debt affirmed at 'AA-'

Contact: 

Primary Analyst 

Matt Choi

Associate Director

+82 2 3278 8372

Fitch Australia Pty Ltd, Korea Branch

9F, 97, Uisadang-daero, Yeongdeungpo-Gu, Seoul 07327 Korea

Secondary Analyst

Heakyu Chang

Director

+82 2 3278 8363

Committee Chairperson 

Parson Singha, CFA

Senior Director

+662 108 0151

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Global Bank Rating Criteria  (pub. 20 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr 
_id=1008609

Solicitation Status 

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008609

Endorsement Policy 

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det 
ail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: 
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING 
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S 
FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND 
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF 
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, 
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF 
CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE 
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS 
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED 
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH 
WEBSITE. 

 

Fitch Australia Pty Ltd holds an Australian financial services licence (AFS 
licence no. 337123) which authorises it to provide credit ratings to wholesale 
clients only. Credit ratings information published by Fitch is not intended to 
be used by persons who are retail clients within the meaning of the Corporations 
Act 2001