RAM Ratings reaffirms AAA(s) rating of Hana Bank's RM1 billion MTN Programme

Published on 02 August 2011
RAM Ratings has reaffirmed the AAA(s) rating of Hana Bank’s up to RM1.0 billion Nominal Value Multi-Currency Medium-Term Note (MTN) Programme (2009/2012), with a stable outlook. The issue rating is supported by a guarantee from the Government of the Republic of Korea (GoK). The GoK’s credit profile is considered healthy, supported by a large, high-income economy which has exhibited long and proven trends in economic stability and resilience. Hana Bank is the fourth-largest South Korean commercial bank and is wholly owned by Hana Financial Group Inc (HFG or the Group); the Bank has a strong franchise and is viewed to be systemically important in its home base.



While Hana Bank’s current gross non-performing loan (NPL) and credit-cost ratios are healthy, the weak South Korean property market had affected the construction and real-estate-related sectors, particularly real-estate project finance (PF) loans. The Bank’s gross NPL ratio had risen to 1.6% as at end-December 2010, although still broadly kept in check with a slight improvement in the gross NPL ratio of its household loans. Meanwhile, the Bank’s credit-cost ratio had eased to 0.6% in FY Dec 2010 (FY Dec 2009: 0.8%). We note that weaknesses in the construction and real-estate-related sectors are unlikely to ease in the near term. On balance, Hana Bank has one of the lowest PF exposures among the larger South Korean banks. With a recent sale of PF loans, the Bank’s residual PF exposure is estimated at less than 1.5% of its gross loans.

In FY Dec 2010, Hana Bank’s net interest margin almost revisited its pre-crisis levels, primarily due to a cheaper funding base. Larger net interest income was the primary driver of an almost tripling of its pre-tax profit to KRW1.3 trillion for the same year. Meanwhile, the Bank’s loans-to-deposits ratio stayed high at 136% as at end-December 2010, signalling its significant dependence on wholesale funding.

Notably, the Bank made a sizeable dividend payment of KRW1.9 trillion in relation to HFG’s proposed acquisition of a 51%-stake in Korea Exchange Bank (“KEB”) in December 2010. This had reduced Hana Bank’s tier-1 and overall risk-weighted capital-adequacy ratios to 10.7% and 14%, respectively as at end-December 2010, albeit still adequate.

HFG’s proposed acquisition of the controlling stake in KEB is currently in stalemate, pending regulatory approval; the timeline for the acquisition has been extended to end-November 2011. RAM Ratings will maintain close monitoring of the relevant developments pertaining to the proposed acquisition.

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Joanne Kek
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joanne@ram.com.my