Moody's reviews Hana Bank and KEB

Moody’s placed all Hana Bank ratings on review for possible downgrade while eyeing Korea Exchange Bank’s debt and deposit ratings for possible upgrade.

These actions follow the announcement by Hana Financial Group that it will purchase a 51.02 per cent stake of KEB from US private equity firm Lone Star for KRW4.65 to 4.75 trillion. It may also have to acquire The Export-Import Bank of Korea's 6.25 per cent stake for a further KRW0.57 to 0.58 trillion.

The ratings of Hana Bank on review for possible downgrade are: global local currency deposit of A1; foreign currency long-term senior debt and deposit of A1; foreign currency subordinated debt of A2; foreign currency junior subordinated debt of A2; and bank financial strength rating of C-, mapping to a baseline credit assessment of Baa1.

The ratings of KEB on review for possible upgrade are: GLC deposit of A2; foreign currency long-term senior debt and deposit of A2; and foreign currency subordinated debt of A3. The ratings on review for possible downgrade are its BFSR of C-, mapping to a BCA of Baa2.

"The review of Hana Bank's ratings will evaluate the impact of the huge financing burden of the acquisition on its creditworthiness," says Beatrice Woo, a Moody's Vice President and Senior Credit Officer.

"Although the funding structure of the transaction has yet to be announced, Moody's expects it to be a combination of debt and some form of hybrid instruments such as preference shares. These instruments will require Hana FG to make fixed regular servicing payments. However, Hana FG -- as a shell holding company -- has limited earnings capacity and relatively high leverage ratios," says Woo.

In addition, Moody's expects that Hana FG may explore the scope to reduce the capital levels of both banks since there is a comfortable cushion at both banks over regulatory capital requirements. Any reduction in the core capital levels of either bank would be negative for their stand-alone credit profile.