RAM Ratings reaffirms Korea Development Bank’s AAA/Stable issue rating

KUCHING: RAM Ratings has reaffirmed the AAA/Stable rating of Korea Development Bank’s Conventional and Islamic MTN Programmes, with a combined limit of RM3.5 billion and a sub-limit of RM1 billion for the conventional programme.

The issue rating reflects a high likelihood of support from the Government of South Korea.

Wholly owned by the government, the bank plays a strategic role in providing policy lending to assist the development of the South Korean economy, and leading the restructuring of financially troubled South Korean corporates.

“The reversal of its privatisation by the current government, the remerger of the bank with policy lender Korea Finance Corporation, and the redesignation of the merged entity as a public institution further underline Korea Development Bank’s importance to its government,” it said in a statement.

In view of its policy role, the bank’s asset quality and profit performance are inherently weaker than those of commercial banks. As at end-June 2016, Korea Development Bank’s gross impairedloan (GIL) ratio had nudged up to six per cent, driven by sector-wide downturns in shipbuilding and shipping.

At the same time, heftier impairment provisions had elevated its credit-cost ratio to an annualised 2.2 per cent in fiscal 2016. Nonetheless, the bank achieved an exceptional pre-tax profit of 2.7 trillion won in fiscal 2015, mainly attributable to increased contributions from its associates, which had more than offset the impairment charges.

In 1H16, substantial contributions from Korea Electric Power Co Ltd shored up Korea Development Bank’s pre-tax profit of 771 billion won, despite hefty provisions that had weighed down its profitability.

As at end-June 2016, the bank’s common-equity tier-1 and total capital ratios stood at a respective 12.4 and 14.7 per cent.