Published on 26 December 2013
RAM Ratings has reaffirmed
the AAA/Stable rating of Korea Development Bank’s (KDB or the Bank)
Conventional and Islamic MTN Programme, with a combined limit of RM3.5 billion
and a sub-limit of RM1.0 billion for the Conventional MTN Programme. KDB is a policy bank wholly owned by the Government of South Korea (GoK) through Korea Finance Corporation (KoFC) and KDB Financial Group, with a strong franchise in domestic corporate and investment banking. The rating reflects the very high likelihood of government support for KDB given its strategic role in supporting the growth of the export-oriented South Korean economy.
KDB’s importance has been strengthened further following the announcement of its re-merger with KoFC as part of the GoK’s agenda to streamline and reinforce the roles of various policy banks in South Korea. The re-merger, which is expected to be completed by July 2014, reverses the previous administration’s plans to privatise the Bank. KDB’s role is deemed more crucial now with the emergence of large troubled corporates, particularly those in the shipbuilding, shipping and construction sectors, given their slow recovery after the global financial crisis.
Given KDB’s policy function, its loan portfolio entails higher credit risk. Its gross impaired-loan ratio had worsened to 3.2% as at end-June 2013 (end-December 2012: 2.2%) while its annualised credit- cost ratio rose from 0.5% to 1.4% over the same period. Its asset-quality indicators could weaken further as KDB is substantially exposed to large troubled corporates. Meanwhile, its capitalisation remained adequate with a tier-1 capital ratio of 11.9% and we believe that the GoK will provide the required support should the need arise.
Gladys Chua
(603) 7628 1049
gladys@ram.com.my
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