RAM Ratings assigns AAA rating to NongHyup Bank’s senior notes

Published on 05 November 2012 

RAM Ratings has assigned a long-term rating of AAA to NongHyup Bank’s (“NH Bank” or “the Bank”) senior notes under its Medium-Term Notes Programme of up to RM3.3 billion (“the Notes”), with a stable outlook. NH Bank had formerly been the credit and banking division of the National Agricultural Cooperative Federation (“NACF”); it was spun off on 2 March 2012 as a separate legal entity and wholly owned subsidiary of NACF, pursuant to the latter’s reorganisation. Post reorganisation, the assets and liabilities of the credit and banking unit (including the Notes, previously rated AAA under NACF), have been transferred to the Bank by way of an amendment to the Agricultural Cooperative Law, under which NACF was established. Nonetheless, both NACF and NH Bank are co-obligors for the Notes, on a joint and several basis. RAM Ratings recognises the strong credit link between NACF and the Bank, the latter being NACF’s core profit generator and supporting its agricultural policy functions.     
   
The issue rating continues to reflect a very high likelihood of support from the Government of South Korea (“GoK”), underpinned by NACF’s strategic role of implementing agricultural policies and increasing the nation’s food self-sufficiency, as well as NH Bank’s position as the GoK’s sole conduit vis-à-vis providing agricultural policy loans. In addition, the Bank is systemically important as the fourth largest in South Korea, with about 13% of industry deposits. We note a sturdy track record of government support for NACF as a whole, as evidenced by annual budget allocations, capital injections and deposit placements.

NH Bank’s loans-to-deposits ratio stood at a high 108% as at end-June 2012, signalling its heavier reliance on wholesale funding. In terms of asset quality, the Bank’s lending portfolio deteriorated in 1H 2012 as slower economic growth affected export-oriented South Korean corporates. While loan-impairment charges are still manageable with an annualised credit-cost ratio of 0.6%, the Bank’s asset quality is likely to continue to be pressured. Nonetheless, NH Bank has a healthy loss-absorbing capacity, given its tier-1 risk-weighted capital-adequacy ratio of 11.4% as at end-June 2012. Notably, the Bank’s tier-1 capital base is almost entirely made up of common equity – the strongest form of capital.  

Media contact
Lim Yu Cheng
(603) 7628 1188
yucheng@ram.com.my