OREANDA-NEWS. Fitch Ratings has today affirmed the Long-Term Foreign Currency Issuer Default Ratings (IDRs) on Korea Development Bank (KDB), Export-Import Bank of Korea (KEXIM), and Industrial Bank of Korea (IBK) at 'AA-'. The Outlooks are all Stable. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS
IDRS, SUPPORT RATINGS, SUPPORT RATING FLOORS AND SENIOR DEBT
The three key policy banks' IDRs and Support Rating Floors (SRFs) are equalised with that of the South Korean sovereign (AA-/Stable). The ratings, including the Support Ratings (SRs) of '1', reflect Fitch's expectation of an extremely high probability of extraordinary state support for the policy banks during times of need.

This expectation stems from the banks' policy roles in the local banking system and the government's de-facto solvency guarantee and commitment to hold a controlling stake in them.

KDB's key policy roles include bailing-out or restructuring troubled or failed corporates, funding foreign currency for the system, and financing long-term social-infrastructure projects. According to Article 32 of the Korea Development Bank Act, the government is responsible for any losses incurred by the bank but not covered by the bank's reserves. KDB is 100%-owned by the state directly.

KEXIM's key policy role is to provide export, import and overseas investment credit. According to Article 37 of the Export-Import Bank of Korea Act, the government is responsible for any losses incurred by the bank but not covered by the bank's reserves. KEXIM is effectively 100%-owned by the state (70.2% directly, 15.0% through Bank of Korea, and 14.8% through KDB).

IBK is mandated to provide credit to SMEs, and it focuses on small but viable manufacturers. IBK's importance in supplying funds to SMEs, especially when the system is under stress, has been well acknowledged by the state. According to Article 43 of the Industrial Bank of Korea Act, the government is responsible for any losses incurred by the bank but not covered by the bank's reserves. IBK is effectively 54.9%-owned by the state (51.5% directly, 1.9% through KDB, and 1.5% through KEXIM). Although the state's stake in IBK has declined significantly since November 2013 from 72.3%, Fitch believes the government is committed to keep a majority stake in the bank.

The Stable Outlook on the ratings on the three policy banks corresponds to the Stable Outlook on the rating on the South Korean sovereign.

The senior debt of the three policy banks are rated at the same level as their IDRs. This is because they constitute direct, unconditional, unsecured and unsubordinated obligations of the banks.

SUBSIDIARY AND AFFILIATED COMPANY
Korea Development Bank, NY Branch is a branch of KDB. The rating on the branch's US commercial paper (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 RATINGS, SUPPORT RATING FLOORS AND SENIOR DEBT
The policy banks' IDRs, SRs, SRFs and senior debt ratings are sensitive to a change in Fitch's assumptions around the banks' relationships with South Korean government and South Korea's ratings. 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 COMPANY
KDB NY Branch's US CP programme rating is sensitive to the factors driving KDB's short-term debt.

FULL LIST OF RATING ACTIONS

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'; Outlook Stable
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'AA-'
Senior unsecured debt affirmed at 'AA-'
Euro medium-term note (EMTN) programme rating affirmed '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-'.