Woori Bank - 2015 |
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| Report ID | 5226 | Popularity | 1590 views 3 downloads | |||||
| Report Date | Mar 2016 | Product | ||||||
| Company / Issuer | Woori Bank | Sector | Finance - Financial Institution | |||||
| Price (RM) |
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| Rationale |
MARC has affirmed its AAA rating with a stable outlook on Woori Bank’s RM1.0 billion
Medium-Term Notes (MTN) programme. The rating incorporates MARC’s assessment of Woori Bank’s high
systemic importance as South Korea’s second largest commercial bank with consolidated assets of
KRW297.1 trillion, or about 14% of the banking system’s total assets, as at end-September 2015. MARC
has a foreign currency sovereign rating on South Korea of AAA/Stable and a country ceiling rating of ‘AAA’
for ringgit-denominated bonds and notes issued by entities domiciled and operating in South Korea. Woori Bank retains a strong market position in the South Korean banking sector as reflected by its sizeable
market share of loans of 16.1% and deposits of 12.5% as at end-September 2015 (9M2015). For 9M2015,
the bank’s loan book grew by 12.4% y-o-y where the small and medium enterprises and large corporates
respectively accounted for 33.4% and 22.2% of total gross loans. MARC observes that Woori Bank has
higher exposure to the corporate loan segment relative to its peers, underscoring the bank’s vulnerability
to South Korea’s corporate sector performance. The bank’s gross non-performing loan (NPL) ratio of 1.65%
remained higher than the South Korean banking industry average of 1.41% as at end-September 2015.
This notwithstanding, Woori Bank has shown a steady improvement in asset quality metrics with the gross
NPL ratio declining from 2.10% in 2014, although this has been mainly attributed to write-offs and
disposals. With declining NPLs, the bank’s loan loss coverage ratio rose to 114.3% from 97.2% as at end-
2014. Woori Bank has adequate capitalisation with common equity tier 1 (CET1) and total capital ratios of 8.3%
and 13.4% as at end-September 2015. Although the capital ratios have declined from 11.0% and 12.7%
as at end-2013 due to a merger with the parent company and higher loan growth, they remained above
the regulatory capital requirements of 5.375% and 8.875% respectively in 2016. MARC understands that
the bank aims to increase the CET1 capital ratio to 9.0% by end-2016 through better management of its
risk-weighted assets by adopting an internal ratings-based approach for its credit card assets as well as by
reducing unused credit lines and exposure to non-high grade corporates. Over the long term, MARC does
not anticipate any challenges for Woori Bank to comply with the South Korean regulatory capital adequacy
ratios of 8.0% and 11.5% (including a capital buffer requirement of 1.0% for domestic systemically
important banks). The bank has good access to the capital markets and was able to issue Basel IIIcompliant
subordinated debt of US$1 billion and additional Tier 1 securities of US$500 million over the past
two years. However, given that the majority government-owned Woori Bank is on course to be privatised,
despite several failed attempts, it is unlikely to receive any capital injection from its present shareholders. The bank’s profitability remained subdued by high credit costs and weakening net interest margin (NIM),
which fell to 1.41% on an annualised basis for 9M2015 (9M2014: 1.58%). Despite a higher loan growth
for 9M2015, the bank’s net interest income declined by 1.9% y-o-y to KRW3,003 billion. The bank’s profit
after tax declined by 4.1% y-o-y to KRW716 billion, largely due to higher credit costs of KRW879 billion
(9M2014: KRW663 billion) on higher provision charges in the corporate loan segment. As a result,
annualised return on assets and return on equity declined to 0.36% and 5.21% respectively in 9M2015
(9M2014: 0.42%; 5.54%). Woori Bank’s funding and liquidity profile remained stable with total deposits accounting for 83.3% of its
total funding as at end-September 2015 while the loan-to-deposit ratio increased marginally to 98.3%
(2014: 97.1%). The high loan-to-deposit ratio will constrain the bank’s ability to extend advances without
a corresponding increase in its deposit base given the need to comply with the maximum regulatory
requirement of 100%. Woori Bank has a sound liquidity position with a liquidity coverage ratio of 115.9%
as at end-June 2015, above the minimum regulatory requirement of 85% in 2016. MARC views the bank’s
high foreign currency liquidity ratio of 120% as at end-September 2015 (2014: 121.3%) as positive on
taking into account the reliance of the bank’s foreign funding on wholesale funding sources. The stable outlook on the ratings reflects MARC’s expectation that Woori Bank will remain a systemically
important financial institution in South Korea and its credit metrics will not weaken from current levels. Major Rating Factors Strengths
Challenges/Risks
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