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 17 July 2014

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 rating reflects our expectation of ready government support for IBK given the Bank’s strategic and public-policy role in developing South Korea’s SMEs, the Government of Korea’s (GoK) majority ownership and the IBK Act that protects the Bank’s solvency.
The GoK’s willingness to extend support has been clearly demonstrated through a series of capital infusions. IBK’s strategic importance has been reinforced by the current GoK, which has suspended its predecessor’s plans to privatise IBK. The GoK has emphasised the fostering of SMEs in a bid to transform the South Korean economic structure, which depends much on large export-oriented companies. That said, we still expect the GoK to trim its stake in the Bank, although this is unlikely to fall below 50.1%. As at end-December 2013, the GoK’s direct and indirect shareholdings in IBK had been reduced to 63.4% (end-December 2012: 76.3%). RAM will reassess the rating if the level of anticipated government support is deemed to have weakened.
Meanwhile, IBK displays satisfactory asset quality. As at end-December 2013, the Bank’s gross impaired-loan ratio stood at 1.4% while its annualised credit-cost ratio remained high at 0.8%. Similar to its local peers, the Bank’s profitability has weakened in recent years amid low interest rates. In fiscal 2013, the Bank’s pre-tax profit decreased to KRW1.1 trillion (fiscal 2012: KRW1.5 trillion). IBK remains heavily dependent on wholesale funding, as reflected by its adjusted loans-to-deposits ratio of 123% as at end-December 2013. Its common-equity tier-1 ratio of 8.1% is also weaker than those of its peers and the industry average. Nonetheless, we believe that the GoK will readily provide liquidity and capital support should the need arise.

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Chew Wei Li
603 7628 1025
weili@ram.com.my