September 13, 2017 / 10:13 AM / a year ago

Fitch Rates Shinhan Bank's Basel III Tier 2 Notes at 'BBB+(EXP)'

(The following statement was released by the rating agency) SEOUL, September 13 (Fitch) Fitch Ratings has assigned a 'BBB+(EXP)' expected rating to South Korea-based Shinhan Bank's (Shinhan; A/Stable) proposed US dollar-denominated subordinated unsecured notes. Fitch expects the notes to have a tenor of 10 years and the issuance to be USD350 million in size. Shinhan will use the proceeds to strengthen its Basel III Tier 2 (or gone-concern) regulatory capital position and for general corporate purposes. The notes will be issued under Shinhan's USD6 billion global medium-term note programme, which was last updated on 13 September 2017. The final rating is contingent upon the receipt of final documents conforming to the information already received. KEY RATING DRIVERS Fitch rates the Basel III-compliant Tier 2 subordinated notes two notches below Shinhan's Long-Term Issuer Default Rating (IDR), which in turn is driven by its 'a' Viability Rating (VR). This reflects the notes' high loss-severity relative to senior unsecured instruments due to their subordinated status. If the bank reaches the point of non-viability (PONV), the notes will be fully and permanently written off. This means investors would not recover any of their investment. We believe that the anchor rating best reflecting the risk of Shinhan triggering the non-viability event is the IDR, which is currently underpinned by Shinhan's VR and is higher than its Support Rating Floor. South Korea's banks would reach the PONV when designated as an insolvent financial institution as defined in Article 2 of the Act on the Structural Improvement of the Financial Industry, the key resolution legislation in Korea. This effectively means the PONV is reached upon insolvency or default, which is similar to the point at which senior unsecured debt is considered to be in default. As such, Fitch believes investors of both senior unsecured and Tier 2 subordinated debt would benefit from pre-emptive support from the local authorities given Shinhan's systemic importance to Korea's banking system. The resolution legislation says a financial institution becomes insolvent if: - its liabilities exceed its assets, - it is under suspension of payment of claims, such as deposits, or redemption of money borrowed from other financial institutions, or - the Financial Services Commission or Deposits Insurance Committee deems it is unable to pay claims, such as deposits, or redeem borrowed money without external support. For more details on Fitch's approach to rating Basel III-compliant Tier 2 notes, see the non-rating action commentary <a href="">Fitch: Korean Basel III Terms Become More Creditor Friendly, dated 26 September 2014. RATING SENSITIVITIES Any change in Shinhan's Long-Term IDR, which is currently driven by its Viability Rating, would affect the rating of these notes. Any downgrade of the IDR would be limited to one notch given that the current Support Rating Floor for Shinhan is at 'A-'. For more details on the drivers and sensitivities of Shinhan's VR, see <a href="">Fitch Affirms Shinhan Bank at 'A'; Outlook Stable, dated 17 May 2017. Contact: Primary Analyst Heakyu Chang 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 +662 108 0151 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Date of Relevant Rating Committee: 16 May 2017 Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures 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. 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. 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