November 2, 2017 / 8:59 AM / a year ago

Fitch Assigns KB Kookmin Card First-Time 'A-' Rating; Outlook Stable

(The following statement was released by the rating agency) SEOUL, November 02 (Fitch) Fitch Ratings has assigned South Korea-based KB Kookmin Card Co., Ltd. (KB Card) a Long-Term Issue Default Rating (IDR) of 'A-' and a Short-Term IDR of 'F1'. A Support Rating of '1' has also been assigned. The Outlook on Long-Term IDR is Stable. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS IDRS AND SUPPORT RATING KB Card's IDRs and Support Rating reflect Fitch's view that there is an extremely high likelihood that its parent KB Financial Group Inc. (KB group) would provide support to KB Card, if needed. Fitch considers Kookmin Bank (A/Stable/a), the group's principal operating subsidiary, as a potential source of support to KB Card as KB group is a non-operating holding company with a high common-equity double leverage (125% at end-1H17) and hence has a marginally weaker credit profile than Kookmin Bank. We expect the local regulator to favour Kookmin Bank providing both direct and indirect support to KB Card should KB Card come under severe stress, which was evident from a merger between the two during the credit card crisis in 2003. Fitch views KB Card as a key and integral part of KB group's retail-focused commercial banking operation. KB Card has strong synergies with Kookmin Bank in cross-selling retail products and promoting the group's franchise. Reputational risk to the parent would be significant should KB Card be allowed to default given the brand-sharing and the full ownership by KB group. KB Card was spun off from Kookmin Bank in 2011 to compete and grow more effectively. KB Card is the third-largest credit card company in Korea by assets, accounting for about 12% of Korea's total credit card transactions in 2016. The Stable Outlook reflects Fitch's expectation that KB group, including Kookmin Bank, will perform consistently and is in line with the Outlook on Kookmin Bank. Fitch believes that the challenges of tightening regulation and strong competition are likely to prevent a meaningful improvement in KB Card's financial profile in the next two years, as is the case with its local peers. We expect pre-tax return on average assets (2.4% at end-1H17) to come under modest pressure due to Korea's enlarged definition of small merchants, who enjoy low regulatory merchant fee rates from August 2017, and an increase in marketing costs. Credit costs are likely to gradually rise as interest rates increase. KB Card's linkage to KB group and Kookmin Bank supports strong access to the capital market. Fitch expects KB Card to maintain its leverage, measured by debt/tangible equity, at around 3x in the medium term. RATING SENSITIVITIES IDRS AND SUPPORT RATING KB Card's IDRs and Support Rating are sensitive to any change in our assumptions around the propensity and ability of KB group and Kookmin Bank to provide support to KB Card. This could stem from a change in Kookmin Bank's ratings or its relationship to KB group and Kookmin Bank. The ratings may be upgraded if there is strong evidence that Korean regulators will adopt a consolidated approach to the oversight of all entities within the group, coupled with a sustained improvement to KB group's common-equity double-leverage ratio or consolidated capitalisation. The rating actions are as follows: KB Card Long-Term Foreign-Currency IDR assigned at 'A-'; Outlook Stable Short-Term Foreign-Currency IDR assigned at 'F1' Support Rating assigned at '1' Contact: Primary Analyst Matt Choi Associate Director +82 2 3278 8372 Fitch Australia Pty Ltd, Korea Branch 9F Kyobo Securities Building 97, Uisadang dae-ro, Youngdeungpo-gu Seoul 07327 Korea Secondary Analyst Jonathan Lee Senior Director +852 2263 9951 Committee Chairperson Mark Young Managing Director +44 (0) 20 3530 1318 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here 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. 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