Fitch Ratings has affirmed
The Outlook is Stable.
Key Rating Drivers
Government Support-Driven IDR: The Long-Term IDR is driven by our assessment of a 'Very High' likelihood of government support, as indicated by the Government Support Rating (GSR) of 'a', which is one notch below
D-SIB Designation:
Short-Term IDR Reflects Support:
Stable OE Despite Weaker Growth: Our stable outlook on
In spite of this, the policy response has been light and targeted compared with previous downturns and we do not expect a major reversal in regulatory reforms already implemented. We have assigned the OE score above the 'bb' category implied score, as we believe
Commanding County Franchise:
Allowance Coverage Above Peers: We do not expect any major weakening in the bank's asset quality, as further deterioration in property lending should be mitigated by
High Costs from County Areas: We expect
Stable Capitalisation:
Funding Strength: We expect
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
IDRS and GSR
The Long-Term IDR and GSR will come under pressure if Fitch perceives that the central government's propensity or ability to provide timely extraordinary support to the bank has diminished. Lower propensity may be through an enhanced resolution framework and diminished ability, potentially highlighted by a sovereign rating downgrade. However, we do not expect either scenario to occur in the near term.
The Short-Term IDR will be downgraded if the sovereign's Short-Term IDR is downgraded or if
VR
More extensive use of directed policy lending, resulting in a further meaningful build-up in credit risk without a corresponding increase in loss-absorption buffers, could be negative for the VR. Changes in government policies towards county areas could have a greater impact on
A sustained deterioration in the bank's financial metrics could also lead to a VR downgrade, including a combination of the following reported core metrics:
The four-year average of reported impaired loans/gross loans worsening to around 3.5% (average of four years to 2021: 1.5%) for a sustained period, although Fitch's assessment of asset quality will also consider other indicators, such as 'special-mention' loans, loan-loss provisioning, and whether and to what extent we believe reported metrics understate any deterioration in asset quality.
The four-year average of operating profit/RWA ratio likely to be sustained below 1.5% (average of four years to 2021: 1.7%).
The CET1 ratio falling to below 10.0% (end-3Q22: 11.1%) without a credible plan to raise it back towards the current level.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
IDRS and GSR
An upgrade of the sovereign ratings could lead to positive rating action on the GSR and support-driven IDRs, if that were to indicate a greater ability to support the bank with no change in support propensity. There is no upside for the Short-Term IDR, as it is already at the highest level on the scale.
VR
An upgrade of its VR is possible if improvements in asset quality, especially in county areas, prove to be sustainable, or if there is a sustained improvement in the bank's financial metrics, including the likelihood that the CET1 ratio will be maintained above 13.0% for a sustained period.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
We affirmed the ratings on
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
We affirmed the Long-Term IDRs on
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of
VR ADJUSTMENTS
The OE score of 'bbb-' has been assigned above the 'bb' category implied score due to the following adjustment reasons: sovereign rating (positive).
The business profile score of 'bbb' has been assigned below the 'a' category implied score due to the following adjustment reason: management and governance (negative).
The capitalisation and leverage score of 'bbb-' has been assigned above the 'bb' category implied score due to the following adjustment reason: capital flexibility and ordinary support (positive).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
The IDRs of
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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