Fitch Affirms 3 Korean Key Policy Banks at 'AA-'; Outlook Stable Seoul Fitch Ratings has today affirmed the 'AA-' Long-Term Issuer-Default Ratings (IDRs) of South Korea's three key policy banks - Korea Development Bank (KDB), the Export-Import Bank of Korea (KEXIM), and Industrial Bank of Korea (IBK). The Outlooks are Stable. At the same time, Fitch has withdrawn the Long-Term Local-Currency Issuer Default Rating of KEXIM. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

IDRS, SUPPORT RATING, SUPPORT RATING FLOORS AND SENIOR DEBT

The three policy banks' IDRs and Support Rating Floors are equalised with the IDRs of the South Korea sovereign (AA-/Stable). The ratings, along with the Support Ratings (SRs) of '1', reflect Fitch's view that there is an extremely high probability of the state support to the banks, if needed.

This view is underpinned by critical policy functions undertaken by these policy banks, the government's de-facto solvency guarantees stated in their respective establishment legislation and the government's controlling ownership on them. The legislation for the establishment of each of the three banks requires the government to make up for any losses incurred by the banks but not covered by their reserves.

KDB is mandated to provide credit for fostering local industries, developing social infrastructures and resources, and supporting corporate restructuring. Its policy role in recent years has included bailing-out troubled corporates facing financial difficulty. KDB is 100% directly owned by the government.

KEXIM's policy role is to supply export, import and overseas investment credit to corporates. KEXIM serves as an export-credit agency and is the most proactive Korean bank in providing large loans and guarantees for long-term overseas construction and manufacturing projects. KEXIM is effectively under the government's full ownership (70.0% owned by the government, 17.6% through KDB and 12.4% through Bank of Korea).

IBK's policy objective is to contribute to building up an efficient credit system for viable SMEs. IBK's policy role stands out when the system is under stress as the bank extends more credit to SMEs while commercial banks tend to reduce exposures to them. The government owns a controlling stake in IBK (50.6% directly, 8.8% through KDB and 2.3% through KEXIM). Fitch believes the government is committed to keep a majority stake of the bank.

The Stable Outlooks on three policy banks' Long-Term IDRs reflects that of the South Korea sovereign.

The ratings on the senior debt, medium-term note programmes (for KDB and KEXIM), and US commercial paper (CP) programme (for KDB) of the policy banks are the same as the respective banks' Long-Term and Short-Term IDRs as they constitute direct, unconditional, unsecured and unsubordinated obligation of the banks. The rating on KEXIM's senior market-linked notes also reflects the principal-protected nature of the notes while the coupons vary based on market indicators.

Fitch has affirmed and withdrawn the Long-Term Local-Currency Issuer Default Rating on KEXIM as it is no longer considered by Fitch to be relevant to the agency's coverage because the bank has no plan to issue local-currency debt in offshore markets.

SUBSIDIARY AND AFFILIATED COMPANY

Korea Development Bank, NY Branch is a branch of KDB. The rating on the branch's US CP programme is aligned with KDB's short-term debt rating because the CP programme's rating is sensitive to the same factors that might drive a change in KDB's short-term debt.

RATING SENSITIVITIES

IDRS, SUPPORT RATING, SUPPORT RATING FLOORS AND SENIOR DEBT

The three key policy banks' IDRs, SRs, SRFs and senior debt ratings are sensitive to a change in Fitch's assumptions around the bank's relationships with the South Korea government and South Korea's rating. They would be directly affected by changes to South Korea's ratings or, for example, to the solvency guarantee under the acts that govern the policy banks' establishment. Fitch does not expect any significant changes to either in the near to medium terms.

SUBSIDIARY AND AFFILIATED COMPANIES

KDB NY Branch's US CP programme rating is sensitive to the factors driving KDB's short-term debt.

The rating actions are as follows:

KDB

Long-Term Foreign-Currency IDR affirmed at 'AA-'; Outlook Stable

Short-Term Foreign-Currency IDR affirmed at 'F1+'

Support Rating affirmed at '1'

Support Rating Floor affirmed at 'AA-'

Senior unsecured debt and global medium-term note (GMTN) programme affirmed at 'AA-'

Short-term debt (US CP programme and GMTN programme) affirmed at 'F1+'

KDB, New York Branch

US CP programme affirmed at 'F1+'

KEXIM

Long-Term Foreign-Currency IDR affirmed at 'AA-'; Outlook Stable

Short-Term Foreign-Currency IDR affirmed at 'F1+'

Long-Term Local-Currency IDR affirmed at 'AA'; and withdrawn

Support Rating affirmed at '1'

Support Rating Floor affirmed at 'AA-'

Senior unsecured debt affirmed at 'AA-'

Market-linked securities affirmed at 'AA-(emr)'

Euro medium-term note (EMTN) programme rating affirmed at 'AA-'

IBK

Long-Term Foreign-Currency IDR affirmed at 'AA-'; Outlook Stable

Short-Term Foreign-Currency IDR affirmed at 'F1+'

Support Rating affirmed at '1'

Support Rating Floor affirmed at 'AA-'

Senior unsecured debt affirmed at 'AA-'

OREANDA-NEWS.