RAM Ratings reaffirms Industrial Bank of Korea’s AAA debt rating

Published on 09 July 2012

RAM Ratings has reaffirmed the AAA long-term rating of Industrial Bank of Korea’s (“IBK” or “the Bank”) RM3 billion Conventional and/or Islamic Medium-Term Notes Programme; the long-term rating has a stable outlook. The rating reflects our expectation of government support for IBK given its strategic and public-policy role in developing South Korea’s small and medium-sized enterprises, the Government of Korea’s (“GoK”) majority ownership and the IBK Act that protects the Bank’s solvency. The GoK’s ready willingness to extend support has been clearly demonstrated through capital injections during the Asian financial crisis in the late 1990s and the recent global financial crisis.

While the privatisation of IBK is unlikely to materialise in the near term amid the uncertain global environment, we believe that it may come to fruition over the longer-term horizon. We note that if the GoK’s ownership falls below 50%, the rating of the Bank will need to be reassessed as the level of anticipated government support may weaken.

 

As at end-March 2012, IBK’s gross impaired-loan ratio had deteriorated slightly to 1.57% (end-December 2011: 1.48%) amid the current challenging economic backdrop. However, its credit-cost ratio (on an annualised basis) had improved to 0.79% (end-December 2011: 1.03%), partly due to the adoption of the Korean International Financial Reporting Standards. Notably, IBK depends heavily on wholesale funding given its weak base of customer deposits. In terms of capitalisation, the Bank’s respective tier-1 and overall risk-weighted capital adequacy ratios of 9.07% and 11.53% as at end-March 2012 are also weaker than the corresponding industry averages. That said, we believe that the GoK will provide ready liquidity and capital support should the need arise.

Media contact

Chew Wei Li

(603) 7628 1025

weili@ram.com.my