Fitch Affirms NongHyup Bank Rating at 'A'/Stable

NH Investment & Securities Co

10/01/2014 12:41

(The following statement was released by the rating agency)

SINGAPORE/SEOUL, January 10 (Fitch) Fitch Ratings has today affirmed Korea-based 
NongHyup Bank's (NHB) Long-Term Issuer Default Rating (IDR) at 'A' with Stable 
Outlook, Support Rating (SR) at '1', and Support Rating Floor (SRF) at 'A'. A 
full rating breakdown is provided below.

KEY RATING DRIVERS - IDRs, SR, SRF and senior unsecured debt

The rating actions follow the emergence of NHB's parent, NongHyup Financial 
Group (NHFG), as the preferred bidder to acquire Woori Finance Holdings' (WFH, 
BBB+/Stable) stakes in three of its non-bank subsidiaries: a 37.9% stake in 
Woori Investment and Securities, a 99% stake in Woori Aviva Life Insurance 
(including 48% from Aviva plc), and a 100% stake in Woori FG Savings Bank. Fitch 
expects the acquisitions (valued at about KRW1.1trn in total) to be fully debt 
funded by NHFG. 

NHFG is a financial holding company wholly owned by the National Agricultural 
Cooperative Federation (NACF). It was spun-off from NACF in March 2012. NHB is 
100% owned by NHFG. 

Currently, NHB's IDRs are driven by the expectation of state support, if it is 
needed. In Fitch's assessment, the acquisitions would not have a significant 
impact on the potential government support for NHB. NHB's '1' SR and 'A' SRF 
reflects Fitch's continued belief of an extremely high probability of support 
for the bank from the government - more than for the major commercial banks - 
due to its agricultural policy functions, but less than for the country's policy 
banks. This is because NHB has a large national franchise and legacy policy 
lending. Unlike policy banks in Korea, NHB does not have a solvency guarantee 
from the government nor is it owned by the government.  

In Fitch's view, the acquisitions reflect that NHFG is becoming more motivated 
by commercial interests. The more commercially driven NHFG and its subsidiaries 
are, the lower the probability of extraordinary support from the government for 
them versus policy banks. Moreover, NACF would become less dependent upon NHB as 
other subsidiaries make more meaningful contributions to the group.

RATING SENSITIVITIES - IDRs, SR, SRF and senior unsecured debt

NHB's ratings will be reviewed if there is any significant change in the 
government's propensity to support the bank. Fitch will review the government's 
propensity to support NHB if its policy role diminishes or NHFG/NHB becomes more 
commercially driven. The agency will also assess the implications of the ongoing 
delay in the planned capital injection by the government if it has not occurred 
by September 2014 - more than two years after it was announced in support of 
NHFG/NHB's reorganisation. A reduction in government's support propensity may 
also be evident in a diminishing of NHB's relationship with NACF or the 
government.

Changes in the sovereign ratings could also trigger a rating review. Global 
regulatory initiatives aimed at reducing implicit government support available 
to banks may cause rating review.

The rating actions are as follows:

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

Short-Term Foreign Currency IDR affirmed at 'F1'

Support Rating affirmed at '1' and

Support Rating Floor affirmed at 'A'

Senior unsecured debt, including GMTN programme, affirmed at 'A'

Contact: 

Primary Analyst

Mihwa Park 

Associate Director

+65 6796 7238

Fitch Ratings Singapore PTE Ltd

6 Temasek Boulevard

#35-05 Suntec Tower Four

Singapore 038986

Secondary Analyst

Heakyu Chang

Director

+82 2 3278 8363 

Committee Chairperson

Mark Young 

Managing Director 

+65 6796 7229 

Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: 
leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@fitchratings.com.

Additional information is available at www.fitchratings.com. 

Applicable criteria "Global Financial Institutions Rating Criteria", dated 15 
August 2012, and "Assessing and Rating Bank Subordinated and Hybrid Securities", 
dated 5 December 2012, are available at www.fitchratings.com.

Applicable Criteria and Related Research: 

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Assessing and Rating Bank Subordinated and Hybrid Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542

Additional Disclosure 

Solicitation Status 

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=814092

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