RAM Ratings reaffirms Industrial Bank of Korea's AAA debt rating

Published on 30 June 2015

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 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. While the GoK had reduced its direct and indirect stakes in IBK to 54.9% as at 13 April 2015 (end-December 2013: 63.4%) to meet its fiscal needs, the likelihood of government support for the Bank is still deemed intact. RAM believes that the GoK will maintain a controlling stake in the Bank.
IBK’s financial metrics remained stable in fiscal 2014. Its asset quality had been fairly insulated, with stable gross impaired-loan and credit-cost ratios of a respective 1.4% and 0.7% as at end-December 2014. Careful management of the Bank’s net interest margin had also helped sustain its profitability. While its profit performance is considered weaker than that of its similarly rated peers, IBK has been outperforming the South Korean banking industry’s average. In the near term, the economic challenges facing the Republic amid China’s slower growth, the competitive Japanese yen and high household debt levels could pose some downside risks to the Bank’s asset quality; this could in turn pressure its profit performance.
IBK remains heavily dependent on wholesale funding, as reflected by its adjusted loans-to-deposits ratio of 133% as at end-March 2015. At the same time, its common-equity tier-1 ratio of 8.5% is weaker than those of its peers and the industry average. That said, we believe that the GoK will readily provide liquidity and capital support if needed.

Media contact
Gladys Chua
(603) 7628 1049
gladys@ram.com.my