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 31 Jul 2017.

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 encompasses our expectation of a high likelihood of support from the Government of South Korea (GoK, rated AAA(pi)/Stable/P1(pi) on RAM’s national scale). This is underpinned by the Bank’s public-policy role in developing South Korean SMEs, the GoK’s controlling stake and the Bank’s solvency protection under the IBK Act. The GoK’s direct and indirect stakes in IBK stayed at 55.2% as at end-March 2017. 

As the largest lender to this sector, IBK has a well-established franchise among South Korean SMEs, commanding a solid 23% of the industry’s SME loans as at end-March 2017. IBK’s asset-quality indicators are sound and have remained relatively stable in the last few years. The Bank’s gross impaired-loan (GIL) ratio stood at 1.5% as at end-March 2017 (end-December 2015: 1.3%). Meanwhile, its credit-cost ratio has been hovering around 0.6%-0.8%, i.e. slightly higher than those of its commercial-banking peers, although this is reasonable considering the inherently higher credit risk of its SME portfolio. Notably, the Bank has been less affected by large corporate defaults in the shipping and ship building sectors than some of the other players. We also derive comfort from the Bank’s GIL coverage ratio (including credit-loss reserve), which stood at a strong 165% as at the same date. 

IBK remains primarily reliant on market funding, as demonstrated by its lofty loans-to-deposits ratio of 193% as at end-March 2017. However, we are cognisant of the Bank’s good access to the domestic and international debt capital markets given its linkage to the GoK. In terms of capitalisation, the Bank still lagged its South Korean industry peers, with respective common-equity tier-1 and total capital ratios of 9.6% and 13.3% as at the same date. IBK’s weak profitability - a consequence of its low proportion of non-interest income and relatively high credit cost – further affects its capital generation. That said, we believe that liquidity and capital support from the GoK will be forthcoming if the need arises. 

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

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my