Bangkok--29 Oct--Standard & Poor's
Standard & Poor's Ratings Services today affirmed its 'A/A-1' foreign currency and 'A-1' local currency ratings on Korea Development Bank (KDB), as well as its ratings on KDB's senior unsecured debts, commercial paper programs, and certificate of deposit programs. The affirmation followed the establishment of Korea Finance Corp. (KoFC), a mandated policy-based entity that took over KDB's policy role. The outlook on KDB's long-term counterparty credit rating is negative.
The ratings affirmation mainly reflects our opinion that the extremely high likelihood of support from the government of Korea (foreign currency A/Stable/A-1; local currency A+/Stable/A-1) will be maintained after the spin-off. Standard & Poor's expects that KDB will continue to play a critical role for, and maintain its very strong links with, the government. We believe that KDB will closely collaborate with and provide significant support to KoFC's policy banking function for the foreseeable future, based on KDB's larger size and policy banking know-how in order to ensure a smooth policy role transfer until KoFC can sufficiently conduct its policy role. The ratings on KDB are also supported by the government's legal obligation to maintain the bank's solvency, although Standard & Poor's views this as a sign of the government's commitment rather than a direct guarantee of timely payment of all of the bank's obligations.
We assess the stand-alone credit profile of KDB to be in the 'BBB' category, reflecting its strong capitalization and strong market positions in the large corporate loan and domestic investment banking sector. On the other hand, KDB's stand-alone credit profile is constrained by its lack of a stable retail customer deposit base, concentrated loan portfolio, and weak profitability.
On Oct. 28, 2009, KoFC and KDB Financial Group (KDBFG; the holding company of KDB) were established through a spin-off from KDB. KoFC is a mandated policy-based entity that is taking over KDB's policy role. KoFC will assist small and midsize enterprises (SMEs) in raising funds and also supply and manage funds required for national economic growth. KDB's shares of government-owned companies, a portion of shares of companies undergoing restructuring, assets that were injected into bank recapitalization funds, and a portion of local currency industrial finance bonds have been transferred to KoFC. KDB retains all of its foreign currency debts.
The outlook on KDB's long-term counterparty credit rating is negative, reflecting the risk of a decrease in government support without a material improvement in KDB's stand-alone creditworthiness. We expect that KDB's importance and link to the government should weaken during the privatization process. The ratings on the bank could come under downward pressure if KoFC runs its policy role independently, thereby reducing KDB's importance, or if the government ownership of KDB meaningfully changes. On the other hand, the outlook could be revised to stable if the government abolishes the privatization plan. This, however, is highly unlikely.
Related Research
"General Criteria: Enhanced Methodology And Assumptions For Rating Government-Related Entities", published on June 29, 2009.
A Korean-language version of this media release is available via standardandpoors.co.kr or via Standard & Poor's CreditWire Korea on Bloomberg Professional at SPCK . Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Ratings in the left navigation bar, select Find a Rating.
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