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Moody's lowers outlook on 6 South Korean banks, downgrades Woori Bank

Moody's on April 14 revised its ratings outlook on fiveSouth Korean banks to negative from stable amid the challenging operatingenvironment in the country in 2016 and possibly beyond.

The five banks are DGB Financial Group Co. Ltd. unit , unitKEB Hana Bank,Shinhan Financial Group Co.Ltd. unit ShinhanBank and BNKFinancial Group Inc. units Busan Bank Co. Ltd. and

Moody's expects the banks to face increasing risk due to theweakening credit conditions in South Korea, saying an increase in the level ofproblem loans will likely put pressure on the banks' profitability,capitalization and asset quality. Further, banks that have higher exposure toproblem industries such as shipping, shipbuilding and construction are the onesthat will be likely affected by these changes.

The five banks' long-term and short-term ratings, as well astheir baseline credit assessment and adjusted baseline credit assessment, wereaffirmed.

Meanwhile, Moody's changed its assessment of South Korea'smacro profile to "strong" from "strong +."

Moody's also downgraded Woori Bank's ratings with a negative outlook. The ratingagency believes it is now unlikely for the bank to improve its financialprofile. It is also likely that Woori Bank will have a hard time raisingcapital due to Korea Deposit Insurance Corp.'s plan to the bank.

The bank's foreign-currency long-term deposit rating andforeign-currency senior unsecured rating were downgraded to A2 from A1. Thebank's short-term foreign-currency deposit rating was affirmed at P-1.Further, the bank's long-term counterparty risk assessment was downgraded toA1(cr) from Aa3(cr), while its short-term counterparty risk assessment wasaffirmed at P-1(cr). Meanwhile, the bank's baseline credit assessment andadjusted baseline credit assessment were downgraded to "baa3" from"baa2."

The short-term counterparty risk assessment of Woori Bank'sLondon branch was affirmed at P-1(cr).

Further, Moody's downgraded its outlook on to stable from positiveand affirmed the bank's ratings. Possible improvements in Jeonbuk Bank'sfinancial metric are now unlikely, the rating agency said, adding that the bankhas a relatively weak capital cushion against its raising level of asset risk.

In addition, Jeonbuk Bank's planned of a 50% stake in Phnom PenhCommercial Bank in Cambodia will offset the capital it received from parentJB Financial Group Co.Ltd. in December 2015. The acquisition is expected to be completedby June.

At the same time, Moody's affirmed the credit ratings ofCitigroup Inc. unitCitibank Korea Inc.,Industrial Bank ofKorea, Shinhan Financial unit Jeju Bank, Korea Development Bank, KDB Asia Ltd., KB Financial Group Inc. unit , ,NongHyup Financial GroupInc. unit NongHyupBank and SuhyupBank. The outlooks are stable.

Moody's said the affirmation on the commercial banksreflects their relatively lower exposure to the country's problem sector, aswell as their sufficient capital buffers and stable funding and liquidityprofiles. The affirmation on the policy banks reflects the very stronglikelihood that the government will support them in times of stress.

Moody's also affirmed the credit ratings of JB Financialunit Kwangju BankLtd. and StandardChartered Plc unit StandardChartered Bank Korea Ltd. and maintained the negative outlook onthe two banks.