Moody’s credits Kyongnam Bank for good franchise

Moody's Investors Service has assigned ratings to Kyongnam Bank for the first time.

The outlook for all the ratings, which is a D+ Bank Financial Strength Rating, A3/Prime-1 global local currency long-term/short-term deposit ratings, and A3/Prime-1 foreign currency long-term/short-term deposit ratings, is stable.

"The BFSR of D+, which translates into a Baseline Credit Assessment of Baa3, reflects the bank's good franchise in its home markets, Gyeongnam province and Ulsan city, as well as its adequate financial fundamentals," says Seung Jun Lee, a Moody's analyst.

"However, the rating also considers Kyongnam's rather modest risk positioning given the still-developing nature of its internal controls," adds Lee.

Kyongnam’s net interest margin has been narrower than that of other Korean regional banks with a similar focus on SME lending, due mainly to the lower level of low-cost deposits in its funding structure.

"In Moody's view, the probability of systemic support for Kyongnam Bank is very high, which results in a three-notch uplift in the GLC deposit rating to A3/Prime-1 from the bank's Baa3 BCA," says Lee.

Kyongnam's A3/Prime-1 foreign currency deposit ratings are in line with its local currency ones, as those are not constrained by Korea's foreign currency deposit ceiling of A1.

The BFSR is underpinned by Kyongnam's leadership position in its region, where the bank had market shares of 25 per cent in deposits and 21 per cent in loans at end-2009.

The rating is also supported by the bank's adequate capital, with a Tier 1 capital ratio of 10.05 per cent as of September 2010. However, Kyongnam may face difficulty raising additional capital during the privatization of WFH.