RAM Ratings reaffirms NACF's AAA debt rating

Published on 05 July 2011
RAM Ratings has reaffirmed the AAA rating of National Agricultural Cooperative Federation’s (NACF or the Cooperative) senior notes under its Medium-Term Notes Programme of up to RM3.3 billion (MTN); the long-term rating has a stable outlook.

The rating is anchored by NACF’s strategic importance to the Government of South Korea (GoK) in implementing agricultural policies as well as improving the economic and social status of farmers in South Korea. NACF also acts as a “central bank” to member cooperatives via its mutual credit services. Given the Cooperative’s crucial role, it derives strong financial support from the GoK.

NACF is currently undergoing a reorganisation that involves separating its profit centres into 2 new holding companies, i.e. financial and non-financial.

Post-reorganisation, the MTN will likely be vested over to a newly established subsidiary, NH Bank (currently known as the Cooperative’s credit and banking unit), under the financial holding company; this will remain NACF’s core profit centre. As expressed in its recent letter of support, the GoK will provide the necessary backing, such as capital injections and tax exemptions, to facilitate the reorganisation. The capital-adequacy ratio of NH Bank is also expected to remain strong at about 15%. We are of the view that both NACF and NH Bank will continue benefiting from the GoK’s sturdy support, underpinned by their pivotal roles in the country’s agricultural policies.

As at end-December 2010, NACF’s gross non-performing-loan (NPL) ratio had deteriorated to 2.5% while its credit-cost ratio had increased to 0.9% (end-December 2009: 1.3% and 0.7%), driven by higher NPLs and heftier provisioning for real-estate project financing and corporate loans amid the sluggish property sector. Nonetheless, the Cooperative’s gross NPL ratio eased marginally to 2.3% as at end-March 2011; we expect the ratio to be reduced to below 2% by the end of this year, backed by NPL disposals and write-offs. Meanwhile, NACF’s credit cost is expected to remain elevated in fiscal 2011.

All said, the Cooperative boasts a healthy funding profile, as evinced by its large share of South Korea’s customer deposits – a testament to its extensive branch network. NACF’s capitalisation remained strong as at end-March 2011, with respective tier-1 and overall risk-weighted capital-adequacy ratios of 12.8% and 16.5% (end-December 2010: 12.2% and 16.0%).

Media contact
Gladys Chua
(603) 7628 1049
gladys@ram.com.my