The credit rating of AO Woori Bank (hereinafter, Woori Bank, or the Bank) is based on its a- standalone creditworthiness assessment (SCA) and the very high likelihood of the parent entity, which has strong creditworthiness, providing support to the Bank. Woori Bank’s SCA takes into account strong capital adequacy, a satisfactory risk profile assessment, an adequate funding and liquidity position, and an adequate business profile assessment.
Woori Bank focuses on providing corporate banking services to subsidiaries of companies from the Republic of Korea. The Bank’s owner (hereinafter, the Supporting Entity, SE, or the Group) is one of the largest financial organizations in the world.
key assessment factors
Very high likelihood of support from the Supporting Entity. In ACRA’s opinion, if necessary the SE will provide the Bank with sufficient short-term and long-term funding and capital injections in view of the following:
The creditworthiness of the SE is high compared to the standalone creditworthiness of the Bank, and the scope of the Bank’s business is not a factor that could limit the effectiveness of potential support;
The Group exercises complete shareholder and operational control over the Bank (the Group determines the corporate risk management procedures and standards applied by the Bank taking into account Russian law);
The Bank and the Group operate under the same brand and therefore a possible default of the Bank may lead to significant reputational risks for the Group.
The Agency takes into account the fact that the SE operates in a jurisdiction that differs from the jurisdiction of presence of the Bank, which makes the possibility of providing support dependent on the freedom of movement of capital between the countries. In addition, the termination of the Bank’s activities or its deconsolidation will not lead to the emergence of critical risks for the implementation of the group-wide strategy.
Due to the above, ACRA determines the Bank’s credit rating as AAA(RU).
The adequate business profile is based on the strong assessments of the ownership structure and quality of the Bank’s corporate governance, given the control exercised over it by the SE and its limited position in the Russian banking services market. Diversification of operating income is assessed as low. As a result of the sharp increase of the key rate in H1 2022, the share of interest income from receivables from banks and other financial institutions increased significantly. The normalization of the interest rate, in the Agency’s opinion, should lead to a partial recovery of other income items in the structure of the operating result. The Bank’s strategy covers a three-year period and takes into account factors of external instability that impact the development of the financial system. The Bank plans to take a conservative approach to risk acceptance while continuing to service corporate clients who are mostly subsidiaries of South Korean companies.
ACRA assesses the Bank’s capital position as strong, taking into account the high N1.2 capital adequacy ratio, which allows the Bank to withstand growth in the cost of credit risk by more than 500 bps. The Bank demonstrates a strong ability to generate capital — the averaged capital generation ratio (ACGR) for 2017–2021 remained high. Average indicators for operating efficiency (ratio of operating costs to operating expenses (CTI) and the net interest margin (NIM)) for the same period were largely unchanged and do not impact the assessment of the Bank’s capital position.
Satisfactory risk profile assessment. Against the backdrop of growing uncertainty and the impact of external shocks, the structure of Woori Bank’s assets underwent serious changes: the Bank accumulated low-risk, highly liquid assets, while reducing the volume of receivables in the loan portfolio. However, ACRA notes that, in comparison with common equity, the volume of receivables from companies related to depositary activities is noticeable, and cooperation with these entities may be difficult due to the current sanctions regime. There is no overdue or problem debt on Woori Bank’s balance sheet. At the same time, the Bank resorts to covering potential loan debt risks using collateral in the form of guarantees from the SE or companies with high credit quality. The Bank’s heightened exposure to market risk puts additional pressure on the risk profile assessment.
The adequate funding and liquidity position is based on the high volume of liquid and highly liquid assets coupled with a considerable concentration of funding sources. According to the short-term liquidity shortage indicator calculated by ACRA, the Bank has a liquidity surplus in both the base case and stress scenarios. The long-term liquidity shortage indicator corresponds to a strong assessment. The Bank’s resource base has a low level of diversification and is almost entirely made up of corporate clients’ funds. Concentration on funds of legal entities is taken into account in the assessment of concentration on the funds of the largest creditors, and therefore the Agency has not lowered the funding assessment in this area.
SE maintaining shareholder and operational control;
Maintaining business profitability;
Maintaining the current liquidity position.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the credit rating will highly likely remain unchanged within the 12 to 18-month horizon.
A negative rating action may be prompted by:
The Group’s declining interest in developing its business in Russia;
Significant deterioration of the financial standing of the SE.
Support: ACRA is of the opinion that if necessary, the Supporting Entity will be able to provide the Bank with extraordinary support in the form of capital and/or liquidity. Taking into account the support factors, the Bank’s credit rating is set at AAA(RU).
No outstanding issues have been rated.
The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Banks and Bank Groups under the National Scale for the Russian Federation, Methodology for Analyzing Rated Entities Associated with a State or a Group, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of AO Woori Bank was published by ACRA for the first time on February 17, 2022. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on data provided by AO Woori Bank, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of AO Woori Bank and the financial statements of AO Woori Bank drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited and AO Woori Bank participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.ACRA provided no additional services to AO Woori Bank. No conflicts of interest were discovered in the course of credit rating assignment.