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Fitch Affirms Kookmin Bank at 'A'; Outlook Stable
May 17, 2017 / 4:36 AM / 2 months ago

Fitch Affirms Kookmin Bank at 'A'; Outlook Stable

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(The following statement was released by the rating agency) SEOUL, May 17 (Fitch) Fitch Ratings has affirmed South Korea-based Kookmin Bank's Long-Term Issuer-Default Rating (IDR) at 'A'. The Outlook is Stable. Fitch has also affirmed Kookmin Bank's Viability Rating (VR) at 'a'. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS IDRS, VR AND SENIOR DEBT Kookmin Bank's IDRs are driven by its VR, which is underpinned mainly by the bank's substantial domestic retail operations as well as its strong capitalisation and more commercially driven management team. It also takes into account the bank's improving and yet challenging operating environment and its sound loan quality. The rating also considers Kookmin Bank's relatively modest liquidity and funding profile by international standards that is in line with the rest of Korea's banking system, especially in foreign currency, although this is mitigated by facilities that can be made available by the central bank. The Stable Outlook reflects Fitch's expectation that Kookmin Bank's retail-oriented operation will help in the bank's recovery amid low interest rates. Kookmin Bank's current management team has been more effective at implementing the bank's plans. In the past, the bank had made relatively frequent changes to the senior management team, making it challenging for the bank to develop long-term plans and achieve its strategic goals. The bank has also been more commercially driven about its exposure to the weak corporate sector since 2013. Fitch estimates Kookmin Bank's operating profits/risk-weighted assets to improve to about 1.3% in 2017, noticeably higher than the 0.8% in the past two years. The recovery comes with a significant clean-up of its exposure to weak sectors and a significant downsizing of its staff by 10% in 4Q16. Assuming no major M&As, Fitch expects Kookmin Bank's capitalisation to remain strong with a Fitch Core Capital ratio of around 15% for the next two years given its modest loan growth prospects of slightly above the nominal GDP growth rate. Commercial lenders, including Kookmin Bank, have focused on household loans and the property leasing sector following the buoyant local property market since mid-2014. Kookmin Bank's loans to households and self-employed individuals, in aggregate, represent about 75% of its total loans, compared with its major local peers' average of about 62%. Fitch does not see Korea's weakening household debt servicing ability as a serious and imminent issue, although it is not yet clear how it will affect Kookmin Bank. Fitch anticipates Kookmin Bank's ratio of loans classified as precautionary and below under the local regulator's loan-quality categorisation to remain stable and broadly in line with the local commercial bank average in the next two years. Kookmin Bank's customer loans-to-deposits ratio (after adjusting for loans to and deposits to/from financial institutions) improved in 2016 by 2pp to 105%. Fitch expects the ratio to improve gradually given its modest loan growth plan. The nation's strengthened foreign-currency reserve position (close to 100% of external liabilities) should serve as a significant buffer to the banking sector's weak foreign-currency funding profile relative to international peers. SUPPORT RATING AND SUPPORT RATING FLOOR The bank's Support Rating and Support Rating Floor reflect Fitch's continued belief of an extremely high probability of support from the South Korean government (AA-/Stable), if required. This view is mainly based on Kookmin Bank's systemic importance as one of South Korea's largest commercial banks, holding 13% and 26% of the banking system's total loans and retail deposits, respectively. RATING SENSITIVITIES IDRS, VR AND SENIOR DEBT The bank's IDRs, VR and senior debt ratings are sensitive to a change in Fitch's assumptions about Kookmin Bank's company profile, risk appetite and financial profile. The ratings could be upgraded if there is a sustainable and significant improvement in the bank's financial strength and company profile. The ratings could be downgraded if there is a significant increase in the bank's risk appetite, including rapid asset growth or weakened loan quality, leading to erosion of its capitalisation. The downside to the IDR would be limited to one notch as the current Support Rating Floor for Kookmin Bank is 'A-'. SUPPORT RATING AND SUPPORT RATING FLOOR Support Rating and Support Rating Floor are potentially sensitive to any change in Fitch's assumptions about the propensity or ability of the Korean authorities to provide timely support to the bank. This might arise if there is a change in the Korean authorities' ability to provide support. Furthermore, global regulatory initiatives aimed at reducing the implicit government support available to banks may cause downward pressure on the ratings. Fitch expects the local regulator to propose a revision to its resolution framework to add a bail-in feature in 2H17. However, it remains to be seen how strong the language will be and how feasible it will be to enforce a bail-in in practice. The revision has been postponed due to the domestic political turmoil in Korea since last fall and the presidential election in May 2017. The rating actions are as follows: Long-term IDR affirmed at 'A'; Outlook Stable Short-term IDR affirmed at 'F1' VR affirmed at 'a' Support Rating affirmed at '1' Support Rating Floor affirmed at 'A-' Senior unsecured debt (long-term) affirmed at 'A' Contact: Primary Analyst Heakyu Chang Senior Director +82 2 3278 8363 Fitch Australia Pty Ltd, Korea Branch 9F Kyobo Securities Building 97, Uisadang-daero, Yeongdeungpo-Gu Seoul 07327, South Korea Secondary Analyst Matt Choi Associate Director +82 2 3278 8372 Committee Chairperson Parson Singha, CFA Senior Director +66 2108 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. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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