RAM Ratings has reaffirmed the AAA/Stable/- rating of Industrial Bank of Korea’s (IBK or the Bank) RM3 billion Conventional and/or Islamic MTN Programme.

Published on 08 July 2016

RAM Ratings has reaffirmed the AAA/Stable/- rating of Industrial Bank of Korea’s (IBK or the Bank) RM3 billion Conventional and/or Islamic MTN Programme. The issue rating incorporates our expectation of a high likelihood of ready government support given IBK’s strategic and public-policy role in developing South Korea’s SMEs, the Government of Korea’s (GoK) majority ownership and protection of the Bank’s solvency under the IBK Act. While the GoK had previously reduced its direct and indirect stake in IBK to meet its fiscal needs, we believe that the GoK will maintain its controlling stake in the Bank, with the likelihood of its solid support remaining intact. As at end-April 2016, the GoK’s direct and indirect interests in the Bank summed up to 55.2%.

IBK enjoys an entrenched franchise in the South Korean SME sector, with a market share of 22% as at end-December 2015. Its credit metrics have remained in line with our expectations. The Bank’s credit-cost ratio stayed relatively high at 0.7%, a result of IBK’s large exposure to SMEs that generally entail higher credit risk. Meanwhile, its gross impaired-loan (GIL) ratio stood at 1.3% as at the same date, partially due to active write-offs and sale of impaired loans. Asset-quality pressures are expected to persist over the next year. Nonetheless, RAM continues to derive comfort from the Bank’s adjusted GIL coverage ratio, which came up to a high 185% as at end-December 2015. The Bank’s profitability was still deemed weak, with a net interest margin of 2.1% and an ROA of 0.6%.

IBK continues to be heavily reliant on wholesale funding, as evinced by its adjusted loans-to-deposits ratio of 125% as at end-December 2015. The Bank’s common-equity tier-1 ratio of 8.3% and total capital ratio of 12.5% were also weaker than those of its similarly rated peers as well as the industry averages. That said, we believe that the GoK will readily extend liquidity and capital support if the need arises.

Media contact
Liang Huey Jean
(603) 7628 1124
jean@ram.com.my