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Sub-sector: Banks
Security Bank (PH)
- Sector: Financial Services
- Sub Sector: Banks
- Country: Philippines
- Bond: SECBPM 5.5 29
- Indicative Yield-to-Maturity (YTM): 4.694%
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Fundamental View
AS OF 07 Mar 2025- Security Bank has historically been a wholesale focused bank. Rapid retail book expansion pre-pandemic led to a large asset quality hit when COVID-19 struck. The bank completed working through its risk issues at end-2021 and resumed brisk growth again in the retail book since.
- The bank had a less well-established deposit franchise than most peers, resulting in a heavy hit to NIMs when rates rose this cycle. This has led it to focus aggressively on growing the higher yielding retail and MSME segments, the latter via forming a new business banking segment in 2022.
- Capital ratios have fallen as the bank refocused on growth; the CET1 ratio is in a low 12-13% range.
- MUFG is a 20% shareholder of Security Bank.
Business Description
AS OF 07 Mar 2025- Security Bank was established in 1951 and obtained its universal banking license from the BSP in 1994. It is today the 9th largest bank in the Philippines.
- The bank is majority-owned by longtime owner Frederick Y. Dy (23.7%) and MUFG Bank (20%), which acquired its stake in April 2016.
- SB Finance, a joint venture between Security Bank and Thailand's Bank of Ayudhya (Krungsri), a consolidated subsidiary of MUFG, was launched in 2019. The unit is a consumer finance company formed to engage in the unsecured loans business in the Philippines, focusing on the lower mass retail segment.
- Security Bank's loan portfolio is 29% consumer, 3% MSME, ~28% middle market and ~40% corporate at 4Q24. The consumer and MSME book comprises mortgages (48%), auto loans (20%), credit card (23%) and small business loans (9%) as of 3Q24.
Risk & Catalysts
AS OF 07 Mar 2025- Any rating downgrade of the Philippine sovereign would have a negative impact on Security Bank.
- Margin pressure from the bank’s earlier weaker deposit franchise is easing with the declining rate environment and heavy growth focus on the higher yielding retail and MSME (business banking) segments, which continues to be the strategy going forward.
- While asset quality held up in FY24, we are cautious about risks from the brisk growth in riskier segments, given the thinning reserve cover and capital buffer.
- Capital ratios have fallen due to brisk RWA growth and are now behind peers. They are set to fall by a further ~1 ppt from the buying of a 25% stake in Home Credit Finance Philippines (HCPH) from MUFG, which would take the CET1 ratio to ~12%. We regard this level as low, but do not rule out capital support from MUFG if needed.
Key Metric
AS OF 07 Mar 2025| PHP mn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Net Interest Margin | 4.71% | 4.43% | 4.23% | 4.49% | 4.73% |
| ROA | 1.0% | 1.0% | 1.4% | 1.1% | 1.1% |
| ROE | 6.2% | 5.6% | 8.4% | 7.0% | 8.1% |
| PPP ROA | 4.24% | 2.30% | 2.17% | 1.97% | 2.18% |
| CET1 Ratio | 19.2% | 19.1% | 16.1% | 15.3% | 12.9% |
| Total Equity/Total Assets | 18.89% | 17.88% | 14.94% | 15.62% | 12.50% |
| Gross NPL Ratio | 3.90% | 3.94% | 2.95% | 3.36% | 2.85% |
| Net LDR | 99.6% | 85.7% | 83.0% | 88.8% | 84.6% |
| Liquidity Coverage Ratio | 166% | 150% | 144% | 158% | 178% |
| Net Stable Funding Ratio | 132% | 138% | 122% | 131% | 130% |
CreditSight View Comment
AS OF 13 Mar 2025Security Bank has historically been a wholesale focused bank. Rapid retail expansion leading up to the pandemic led to a large asset quality fallout. It has since resumed aggressive growth in higher yielding but riskier retail and MSME segments to counter NIM pressure. This along with a now declining rate environment will continue to support the NIM. Asset quality held up in FY24 but we are concerned about risks from the pace and direction of loan growth. The previously strong capital position has now fallen behind peers due to brisk RWA growth, and will fall further to a low ~12% level following the acquisition of a 25% stake in Home Credit Finance Philippines from MUFG. The NPL cover has declined to below 80%. We have an Underperform recommendation.
Recommendation Reviewed: March 13, 2025
Recommendation Changed: May 21, 2024
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BDO Unibank
Woori Financial Group
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Fundamental View
AS OF 30 Oct 2024Standard Chartered has been making good progress in the past few years, improving its asset quality and profitability and dealing with legacy litigation issues. Capital, funding and liquidity look solid.
However, tension between China and the West, and global economic headwinds continue to cloud the near term outlook.
Its unusual business mix – headquartered and regulated in the UK but operating primarily in Asia, Africa and the Middle East – means it is well diversified but sensitive to geopolitical developments and emerging market volatility.
Business Description
AS OF 03 Mar 2025- Standard Chartered PLC is the holding company and listed entity of the group, in which Standard Chartered Bank is the main operating company.
- Although Standard Chartered is headquartered in London and therefore subject to UK banking regulation, its operations are mainly in Asia (Hong Kong is its biggest single market, as part of its Greater China & North Asia region), Africa and the Middle East. It is present in over 60 markets.
- It has the usual variety of businesses across these regions, including corporate and institutional banking, retail banking, commercial banking and private banking. It specialises in trade finance and cross-border cash management.
- The group announced a revised strategy in 2019 aimed at improving profitability after several years of de-risking, with a targeted return on tangible equity of 10%.
- It is classified as a G-SIB, with a regulatory capital buffer of 1%.
Risk & Catalysts
AS OF 03 Mar 2025Anti-government protests in Hong Kong, a slowing economy in China and a weak commercial real estate sector, and US/China trade tensions have threatened the growth and stability of some of Standard Chartered’s key markets.
A number of Standard Chartered’s markets have underperformed in the past and have therefore been seen as turnaround stories, including India, Korea, Indonesia and the UAE.
The group has had to improve its AML and sanctions controls. In April 2019, it paid a $947 mn fine to US authorities over breaches of US sanctions and a £102 mn fine to the UK FCA for AML weaknesses.
Key Metric
AS OF 03 Mar 2025| $ mn | 4Q24 | Y24 | Y23 | Y22 | Y21 |
|---|---|---|---|---|---|
| Return on Equity | 4.1% | 8.0% | 7.0% | 5.7% | 4.5% |
| Total Revenues Margin | 2.3% | 2.3% | 2.2% | 2.0% | 1.8% |
| Cost/Income | 72.4% | 64.0% | 64.1% | 66.9% | 74.3% |
| CET1 Ratio (Transitional) | 14.2% | 14.2% | 14.1% | 14.0% | 14.1% |
| CET1 Ratio (Fully-Loaded) | 14.2% | 14.2% | 14.1% | 13.9% | 14.1% |
| Leverage Ratio (Fully-Loaded) | 4.8% | 4.8% | 4.7% | 4.8% | 4.9% |
| Loan Impairment Charge | 0.2% | 0.2% | 0.2% | 0.3% | 0.1% |
| Impaired Loans (Gross)/Total Loans | 2.2% | 2.2% | 2.5% | 2.5% | 2.7% |
CreditSight View Comment
AS OF 02 May 2025We revised our recommendation on Standard Chartered HoldCo senior from Underperform to Market perform on 26 April 2023, but we changed our recommendations on Tier 2 and AT1 from Fair to Rich on 10 January 2024. The changes reflect StanChart’s recent resilient performance, while taking into account the potential impact from US tariffs policies and exposure to China. Capital and liquidity ratios are robust, and profitability has improved significantly, but the bank continues to face geopolitical tensions inherent in its extensive operations in Hong Kong, China and the rest of Asia.
Recommendation Reviewed: May 02, 2025
Recommendation Changed: April 26, 2023
Who We Recommend
International Container Terminal Services Inc
BDO Unibank
Woori Financial Group
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Search topics about wealth insights and investments.Security Bank
- Sector: Financial Services
- Sub Sector: Banks
- Country: Philippines
- Bond: SECBPM 5.5 29
- Indicative Yield-to-Maturity (YTM): 4.704%
- Credit Rating : BBB
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Fundamental View
AS OF 27 Feb 2025- Security Bank is the 7th largest bank in the Philippines by total assets and was established on June 18, 1951. Its dollar bonds provide better yield pickup compared to its nearest comparable. We remain comfortable with the bond given Security Bank’s total capital ratio of 14.20%, which is 400 basis points above the minimum regulatory hurdle, which can buffer modest credit losses in its loan portfolios should macroeconomic headwinds worsen.
Business Description
AS OF 27 Feb 2025- Security Bank is the 7th largest bank in the Philippines by total assets and was established on June 18, 1951. Security Bank’s businesses include wholesale banking, financial markets, and retail banking. The bank provides commercial banking services such as deposit products, loans and trade finance, domestic and foreign fund transfers, treasury, foreign exchange, and trust services.
- Security Bank's loan portfolio is 32% consumer & MSME, 28% middle market, and 40% corporate as of 3Q 2024.
Risk & Catalysts
AS OF 27 Feb 2025- Any rating downgrade of the Philippine sovereign would have a negative impact on Security Bank.
- Given the current rate cut environment that drives funding costs lower, Its strategy to aggressively capture market share in the retail and MSME segment might allow the bank to deliver faster growth and higher net interest income margin.
- Rapid expansion on higher yielding retail and MSME segments could worsen asset quality and increase credit costs.
Who We Recommend
International Container Terminal Services Inc
BDO Unibank
Woori Financial Group
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Fundamental View
AS OF 07 Feb 2025UBS agreed to acquire Credit Suisse in March 2023 after the latter collapsed following a severe liquidity crisis.
CS was a large and complex organisation, so the integration, and the inevitable associated losses and costs, will dominate UBS’s strategic outlook and financial performance for several years.
However, UBS was able to negotiate substantial downside protection which should shield it from losses at CS.
Away from CS, UBS has reshaped its business model, with a greater emphasis on wealth management and less focus on investment banking, particularly fixed income.
Its earnings remain somewhat dependent on capital market conditions, but its capital, asset quality and profitability ratios have been among the strongest for European banks.
Business Description
AS OF 07 Feb 2025- Headquartered in Zurich, Switzerland, UBS has private, corporate and institutional clients worldwide and retail clients in Switzerland. It is one of the world's largest wealth managers.
- It completed the acquisition of CS on 12 June 2023. It has merged CS’s domestic Swiss bank (Credit Suisse Schweiz AG) with its own domestic bank (UBS Switzerland AG) in 2024, keeping the CS brand “for the time being”.
- CS’s holding company (Credit Suisse Group AG) has been merged into UBS Group AG, so that the group has a single holding company, and the operating subsidiaries, including UBS AG and Credit Suisse AG, were merged on 31 May 2024.
- UBS operates through its Corporate Center and four business divisions: Global Wealth Management, Personal & Corporate Banking, Asset Management, and the Investment Bank, plus a new Non-core and Legacy division following the acquisition of CS.
- The Investment Bank has been restructured in recent years to scale back fixed income trading and focus on equities trading and origination & advisory business.
Risk & Catalysts
AS OF 07 Feb 2025The acquisition of CS will be a long and complex process, and the necessary restructuring is likely to result in heavy losses and costs, although UBS has substantial protection, not least in the large negative goodwill.
Litigation costs have been a feature of UBS’s results in recent years, although it has agreed settlements in various cases recently.
A French court imposed fines and civil damages of €4.5 bn ($5.1 bn) in February 2019, which UBS appealed. The Court of Appeal retried the case de novo in March 2021 and reduced the fine to €3.75 mn plus civil damages of €800 mn and confiscation of €1 bn. UBS has appealed again and has set aside reserves of €1.1 bn ($1.2 bn) so far.
Key Metric
AS OF 07 Feb 2025| $ mn | 4Q24 | Y24 | Y23 | Y22 | Y21 |
|---|---|---|---|---|---|
| Return On Equity | (1.3%) | 6.0% | 38.4% | 13.0% | 12.4% |
| Total Revenues Margin | 2.6% | 3.0% | 2.9% | 3.1% | 3.2% |
| Cost/Income | 105.7% | 84.8% | 95.0% | 72.1% | 73.6% |
| CET1 Ratio (Transitional) | 14.3% | 14.3% | 14.3% | 14.2% | 15.0% |
| CET1 Ratio (Fully-Loaded) | 14.4% | 14.4% | 14.4% | 14.2% | 15.0% |
| Leverage Ratio (Fully-Loaded) | 5.4% | 5.4% | 5.4% | 5.7% | 5.7% |
| Liquidity Coverage Ratio | 216% | 216% | 216% | 164% | 155% |
| Impaired Loans (Gross)/Total Loans | 0.4% | 0.4% | 0.4% | 0.4% | 0.4% |
CreditSight View Comment
AS OF 09 May 2025We have Market perform recommendations on UBS AG (operating bank) and UBS Group (holding company) having revised the HoldCo recommendation from Underperform in August 2024. Its rescue and takeover of Credit Suisse in March 2023 was a seminal event that has had major consequences for UBS’s strategy and financial performance, as well as carrying substantial execution risk. However, the integration is on track, and UBS’s performance has been steadily improving. Capital, asset quality and liquidity all look strong, although Swiss regulatory capital requirements will continue to increase in coming years.
Recommendation Reviewed: May 09, 2025
Recommendation Changed: August 14, 2024
Who We Recommend
International Container Terminal Services Inc
BDO Unibank
Woori Financial Group
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Fundamental View
AS OF 30 Dec 2024TD’s credit profile is supported by its scale, profitability, and history of strong credit quality, particularly in its core domestic banking footprint. TD also sees significant revenue contributions from the growing capital markets business and wealth management. U.S. retail banking has scale and is an important part of the overall franchise, but profitability will remain challenged.
We expect TD to continue to manage capital levels conservatively given profitability and regulatory pressures stemming from BSA/AML issues.
Business Description
AS OF 18 Dec 2024- Toronto Dominion is the second largest depository institution in Canada with C$2,062 bn in assets as of F4Q24 and a market cap of US$93.3 bn as of December 16, 2024. The company has C$1,269 bn in total deposits.
- As of 2024, TD ranked 9th in terms of U.S. deposits with approximately US$290.1 bn in deposits and 1,137 branches (SNL). The U.S. footprint is focused on the Atlantic coast including Delaware, New Jersey, New York, Massachusetts, New Hampshire, Connecticut, Maine, Vermont, and Pennsylvania.
Risk & Catalysts
AS OF 18 Dec 2024Toronto Dominion has a strong, largely retail-driven deposit base in both Canada and the U.S., which should mitigate the potential for a liquidity event.
The remediation efforts related to the U.S. business represent a medium term headwind for TD’s overall earnings profile, but one we view as manageable given the strength of the Canadian and Wholesale banking parts of the franchise. We expect TD to maintain strong capital and liquidity positions throughout the remediation period.
With the CEO transition, TD is conducting a strategic review of its business priorities and capital allocation, and therefore suspended its medium-term profitability targets. Management expects to provide an update to the medium-term targets in 2H25.
We view real estate-related risk in Canada as manageable for TD given low LTV of exposures in vulnerable markets and conservative underwriting, as well as significantly lower interest rates in Canada compared to the start of 2024.
Key Metric
AS OF 18 Dec 2024| $ mn | FY20 | FY21 | FY22 | FY23 | LTM 4Q24 |
|---|---|---|---|---|---|
| Revenue | 30,311 | 31,801 | 35,848 | 33,866 | 37,163 |
| Net Income | 8,846 | 11,371 | 13,544 | 7,883 | 6,509 |
| ROAE | 1.30% | 0.79% | 0.79% | 0.79% | 0.79% |
| NIM | 1.72% | 1.56% | 1.69% | 1.75% | 1.73% |
| Net Charge-offs / Loans | 0.34% | 0.18% | 0.15% | 0.24% | 0.34% |
| Total Assets | 1,289,484 | 1,394,270 | 1,406,122 | 1,407,709 | 1,479,549 |
| Unsecured LT Funding | 55,061 | 67,073 | 88,875 | 90,998 | 87,128 |
| CET1 Ratio | 13.1% | 15.2% | 16.2% | 14.4% | 13.1% |
CreditSight View Comment
AS OF 03 Mar 2025We maintain our Outperform recommendation for Toronto Dominion. Historically TD has traded as one of the tightest names in the Canadian bank peer group. However, over the past several quarters TD has traded towards the middle of the pack among Canadian banks, closer to BMO and BNS than to RBC. We continue to believe the best value in the sector in current conditions involves trading up in quality to TD and RBC. With the direct financial impact of the BSA/AML settlement in the rearview mirror (but with further restructuring and compliance costs still pending in the next few years), we remain confident in credit fundamentals long-term. The capital raise from selling SCHW shares is positive and allows for investment in Canadian and Wholesale banking.
Recommendation Reviewed: March 03, 2025
Recommendation Changed: March 08, 2023
Who We Recommend
International Container Terminal Services Inc
BDO Unibank
Woori Financial Group
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Fundamental View
AS OF 09 Dec 2024BNP’s financial strength is based on its strong franchises across retail, commercial and investment banking, and its wide business and geographic diversification. Profitability is sound and fairly resilient, while asset quality has held up well.
Uncertainty around the financial health of the French sovereign and its ratings have the capacity to weigh on BNP’s stock price and its credit spreads.
Capital ratios are run tightly considering BNP’s balance sheet size, although this is in the context of its liquid and well-managed risk profile.
Business Description
AS OF 09 Dec 2024- BNP is one of the most diversified banking groups in Europe, having been created from a merger of the retail/commercial bank BNP and the corporate/investment bank Paribas in 2000.
- Domestic Markets (DM) comprises the Group's four retail banking networks in the eurozone and its three specialised business lines (including leasing and digital banking). The retail banks are French Retail Banking (FRB), BNL in Italy, BNP Paribas Fortis in Belgium and BGL BNP Paribas in Luxembourg.
- International Financial Services (IFS) includes consumer finance, asset management and private banking, and subsidiaries in non-eurozone countries, including TEB in Turkey and BNP Paribas Bank Polska.
- Corporate & Institutional Banking (CIB) is a global provider of financial solutions to corporate and institutional clients and includes BNP's extensive trading and investment banking businesses.
Risk & Catalysts
AS OF 10 Dec 2024Pressure on margins is high in Personal Finance, and despite the change in product mix – reducing the concentration in Personal loans and credit cards and moving to Auto loans, it was still a difficult FY23.
BNP Paribas remains the subject of various claims concerning the Madoff matter; amongst other claims. Litigation provisions on the balance sheet stood at €841 mn at 30 June 2024. BNP says the latest claims against it stand at $1.1 bn as of June 2024.
If there was a negative rating action on the sovereign via an outlook change or notch downgrade, it is possible that BNP’s ratings will be impacted but it is difficult to say with any uncertainty. France represents around 30% of revenues and gross commitments on balance sheet and sovereign bond holdings are moderate; we discuss more below.
BNP is increasingly using significant risk transfers, mainly synthetic securitisations of loan portfolios, to gain regulatory capital relief and manage credit risk.
Key Metric
AS OF 09 Dec 2024| mn | 3Q24 | Y23 | Y22 | Y21 | Y20 |
|---|---|---|---|---|---|
| Return On Equity | 9.3% | 9.0% | 8.2% | 8.2% | 6.4% |
| Total Revenues Margin | 1.8% | 1.7% | 1.7% | 1.8% | 1.9% |
| Cost/Income | 60.4% | 62.6% | 60.7% | 67.3% | 68.2% |
| CET1 Ratio (Transitional) | 12.7% | 13.2% | 12.3% | 12.9% | 12.8% |
| CET1 Ratio (Fully-Loaded) | 12.7% | 13.2% | 12.3% | 12.9% | 12.8% |
| Leverage Ratio (Fully-Loaded) | 4.4% | 4.6% | 4.4% | 4.1% | 4.9% |
| Liquidity Coverage Ratio | 124.0% | 148.0% | 129.0% | 143.0% | 154.0% |
| Impaired Loans (Gross)/Total Loans | n/a | 2.9% | 2.9% | 3.3% | 3.6% |
CreditSight View Comment
AS OF 09 May 2025BNP remains one of the more diversified bank names in Europe. Its strong business and geographic diversification has helped it maintain good profitability and asset quality. It has extensive operations in Italy via its subsidiary BNL. Earnings have been resilient, with CIB a stand-out performer. Liquidity and funding metrics look sound. Asset quality has held up well, although an outlier is the group’s personal finance business. The latter is being restructured, to focus more on auto finance rather than personal lending. BNP’s capital position strengthened in 2024 but it will weaken in 2025/6. It is looking to expand now in insurance and asset management, likely to grow fee income. Despite global uncertainty, BNP has not amended any of its target for 2025/2026.
Recommendation Reviewed: May 09, 2025
Recommendation Changed: October 30, 2018
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International Container Terminal Services Inc
BDO Unibank
Woori Financial Group
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Fundamental View
AS OF 01 Nov 2024ING displays robust and consistent asset quality, good earnings, solid capital ratios and a well-balanced funding profile.
These attributes are supported by its strong franchise in retail and wholesale banking in the Benelux region, its good geographic diversification, and its focus on low risk residential mortgage lending.
At the same time, it has sizeable exposures to cyclical industry sectors in its Wholesale Banking division, although these have been reduced in recent years.
Business Description
AS OF 01 Nov 2024- ING was founded in 1991 by a merger between Nationale-Nederlanden and NMB Postbank Group. It is now the largest Dutch financial institution by total assets.
- ING Bank is focused on retail and commercial banking in the Benelux countries, with direct banking franchises in Germany, Spain, Italy, Australia, as well as Poland, Romania, Turkey and the Philippines.
- In April 2016, it completed the process of divesting all of its insurance business (in Europe, the US and Asia), under the Restructuring Plan conditions imposed by the European Commission after it received state aid in 2008-2009.
- In November 2016, ING announced that its resolution entity would be its holding company, ING Groep NV. ING Groep is now the issuing entity for all TLAC/MREL-eligible debt (AT1, Tier 2 and senior unsecured), and its sole operating entity is ING Bank N.V.
Risk & Catalysts
AS OF 01 Nov 2024Exposure to Russia has been coming down meaningfully, and the book is well covered (€1.0 bn offshore exposure with >€0.5 bn cover from guarantees). It also has €400 mn of equity in its Russian subsidiary. We highlight this as Russian exposure is continuing to attract interest and led to some additions to Stage 3 exposures year to date. To put these figures in context, the figures for Russian offshore exposure and equity in Russia at the beginning of the war in February 2022 were €5.3 bn (€2.2 bn covered by risk transfers to third parties) and €0.2 bn.
ING’s CET1 ratio will trend down towards its 12.5% target in the coming years, bringing it more in line with other major peers.
Customer deposits fund over 60% of ING’s balance sheet. 85% of deposits are insured.
Key Metric
AS OF 01 Nov 2024| € mn | Y20 | Y21 | Y22 | Y23 | 3Q24 |
|---|---|---|---|---|---|
| Return On Equity | 4.6% | 8.8% | 7.1% | 14.4% | 14.8% |
| Total Revenues Margin | 1.9% | 2.0% | 1.9% | 2.3% | 2.3% |
| Cost/Income | 63.2% | 60.5% | 60.3% | 51.2% | 49.1% |
| CET1 Ratio (Transitional) | 15.5% | 15.9% | 14.5% | 14.7% | 14.3% |
| CET1 Ratio (Fully-Loaded) | 15.5% | 15.9% | 14.5% | 14.7% | 14.3% |
| Leverage Ratio (Fully-Loaded) | 4.8% | 5.9% | 5.1% | 5.0% | 4.7% |
| Liquidity Coverage Ratio | 137.0% | 139.0% | 134.0% | 143.0% | 146.0% |
| Impaired Loans (Gross)/Total Loans | 2.1% | 1.8% | 1.7% | 1.8% | 1.9% |
CreditSight View Comment
AS OF 02 May 2025After divesting its insurance operations, the remaining business, ING Bank, has stayed a solid Benelux-based bank with a strong direct banking arm in several countries. Profitability growth has been supported by a gradual recovery in the Dutch economy, but since 2018 heavily affected by higher compliance costs after ING was hit by a money-laundering charge. Net interest revenues are declining but fundamentally, the bank looks in good shape versus several other core European banks and fee income is increasing. Capital ratios are trending downwards given distributions on offer to shareholders. In January 2025, it announced its intention to exit Russia, which would appear credit positive. We moved from Outperform to Market perform on 6 February 2025.
Recommendation Reviewed: May 02, 2025
Recommendation Changed: February 07, 2025
Who We Recommend
International Container Terminal Services Inc
BDO Unibank
Woori Financial Group
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Fundamental View
AS OF 06 Sep 2024IBK benefits from a legally binding solvency guarantee from the Korean government and is viewed as a Korean quasi-sovereign issuer. The bank is listed, but remains majority state-owned. Previous governments had proposed privatizing it, but subsequent governments scrapped these plans. The government intends to keep its stake above 50%, and wants IBK to focus on lending to SMEs and provide earlier stage investment capital.
IBK manages the difficult feat of combining its policy role to support Korean SMEs with performance that compares creditably with Korean commercial banks.
Business Description
AS OF 04 Sep 2024- IBK was established under its own Act in 1961 to assist the development of Korea's small business sector. It claims a 23% market share in SME lending.
- It was listed in the early 1990s, but was re-nationalised following heavy losses in the Asian economic crisis of the late 1990s. It was re-listed in 2003, and is majority owned by the government which holds 59.5%; the National Pension Scheme holds 5.6%, and other policy banks have small stakes (7.2% by Korea Development Bank and 1.8% by the Export-Import Bank of Korea).
- Under Article 43 of the IBK Act, if the bank incurs losses they should be set against its reserves and "if the reserves are not sufficient the Government shall assume the remaining loss". Although this is a solvency guarantee and not an explicit guarantee for the timely payment of debts, we believe the Korean government will ensure IBK is in a position to make such timely payments.
Risk & Catalysts
AS OF 07 Jan 2025The bank’s ratings are closely tied to the Korean sovereign’s ratings due to its quasi-sovereign status.
Its ratings and its default risk should therefore not be impacted by any deterioration in its financials, provided the government continues to inject new capital when needed, which it is expected to.
Its policy mandate requires it to use at least 70% of its funding for SMEs. Risks are mitigated by its granular SME exposures which are more than 80% secured, including guarantee from state-owned credit guarantee agencies. Korean governments have also always been quick to provide support including capital injections to IBK when needed, with the most recent injection of KRW 1.3 tn during the COVID.
Key Metric
AS OF 04 Sep 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| Pre-Provision Operating Profit / Average Assets | 1.33% | 1.30% | 1.49% | 1.59% | 2.78% |
| ROAA | 0.5% | 0.6% | 0.6% | 0.6% | 0.6% |
| ROAE | 6.4% | 9.2% | 9.5% | 8.8% | 8.7% |
| Provisions/Average Loans | 0.60% | 0.34% | 0.50% | 0.67% | 1.03% |
| Nonperforming Loans/Total Loans | 1.08% | 0.85% | 0.85% | 1.05% | 1.30% |
| CET1 Ratio | 11.1% | 11.3% | 11.1% | 11.3% | 11.6% |
| Total Equity/Total Assets | 6.95% | 6.92% | 6.79% | 7.10% | 7.06% |
| NIM | 1.55% | 1.51% | 1.78% | 1.79% | 1.73% |
CreditSight View Comment
AS OF 23 Sep 2024IBK is not wholly government owned – 59.5% direct government ownership, 7.2% KDB and 1.8% KEXIM – but is a policy bank benefiting from a Korean government solvency guarantee. For a policy bank it also has a fairly good track record and manages the difficult feat of combining its policy role to support Korean SMEs with performance that compares creditably with Korean commercial banks. As the leading lender to Korea’s medium and small businesses, IBK plays a key role in the country’s economy, enhanced by the longstanding objective of numerous administrations to achieve a more diversified economy less reliant on the “chaebol”. Successive Korean governments have always been quick to provide support including capital injections to the policy banks when needed.
Recommendation Reviewed: September 23, 2024
Recommendation Changed: March 17, 2017
Who We Recommend
International Container Terminal Services Inc
BDO Unibank
Woori Financial Group
How may we help you?
Search topics about wealth insights and investments.The Export-Import Bank of Korea
- Sector: Financial Services
- Sub Sector: Banks
- Region: Korea
- Bond: EIBKOR 5.125 33
- Indicative Yield-to-Maturity (YTM): 4.55%
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Fundamental View
AS OF 14 Aug 2024KEXIM is a pure policy bank that is directly and indirectly wholly owned by the government of the Republic of Korea, which is obliged under Article 37 of the Export-Import Bank of Korea Act to fund any losses that cannot be covered by the bank’s reserves.
While this is a solvency guarantee and does not explicitly guarantee the timely repayment of debt, we view it as inconceivable that the Korean authorities would fail to provide KEXIM with support in a timely manner, should this be needed, given its crucial policy role and close government links.
Business Description
AS OF 14 Aug 2024- KEXIM was set up in 1976 to support Korean companies in their overseas business through export credit guarantee programs, as well as providing finance for imports and for overseas investment. It provides funding for both short term trade and long term investment, and manages two government-entrusted funds: the Economic Development Cooperation Fund (EDCF), a Korean official development assistance program, and the Inter-Korean Cooperation Fund (IKCF), an economic cooperation program to promote exchanges with North Korea. It is also a conduit through which the government doled out COVID-19 assistance to affected companies.
- Till 2030, KEXIM aims to preferentially focus on seven sectors (hydrogen energy, wind and solar power, rechargeable battery and energy storage systems (ESS), future mobility, 5G and next-generation semiconductors, pharmaceutical and healthcare, and digital technology and cultural content) which are considered new growth drivers of the Korean economy. It has historically focused on the shipbuilding and engineering & construction industries.
- KEXIM is 100% owned by the Korean government: 73% directly and the remainder through stakes held by the Bank of Korea (8%) and Korea Development Bank (19%). In contrast to peer policy banks IBK and KDB, KEXIM has remained more consistently a policy bank but its role has been adjusted to ensure it complements rather than competes with the Korean commercial banks.
Risk & Catalysts
AS OF 07 Jan 2025Previous Korean governments have made moves to privatise the other policy banks, but KEXIM has retained its policy bank role and government ownership, which are not likely to change.
Korea’s shipbuilders have long been the largest users of KEXIM’s services. Losses on exposure to the sector, in particular Daewoo Shipbuilding (DSME), pushed KEXIM into the red in 2016 but the government injected capital and its condition has recovered.
Together with KDB, KEXIM has played a key role in helping corporate Korea survive the COVID-19 induced crisis.
Key Metric
AS OF 14 Aug 2024| KRW bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Pre-Impairment Operating Profit / Average Assets | 1.3% | 1.2% | 1.1% | 1.1% | 1.1% |
| ROAA | 0.5% | 0.1% | 0.5% | 0.4% | 0.6% |
| ROAE | 3.2% | 0.7% | 3.2% | 2.7% | 4.7% |
| Provisions/Average Loans | 0.5% | 1.2% | 0.5% | 0.8% | 0.3% |
| Nonperforming Loans/Total Loans | 2.4% | 1.8% | 1.9% | 1.2% | 0.7% |
| CET1 Ratio | 12.9% | 13.4% | 13.3% | 11.8% | 13.0% |
| Total Equity/Total Assets | 14.9% | 14.8% | 15.1% | 12.6% | 14.3% |
| Net Interest Margin (NIR/Ave Assets) | 1.0% | 0.9% | 0.9% | 0.9% | 0.7% |
CreditSight View Comment
AS OF 07 Jan 2025KEXIM is a wholly government owned policy bank benefiting from a Korean government solvency guarantee. It plays a key role in financing large-ticket exports in particular ships and large-scale overseas engineering projects. Its credit exposures include some industry and borrower concentrations especially to Korea’s shipbuilders and its financial performance has at times suffered. But the Korean government has always acted in a timely manner to endure its solvency, and with this strong backing we view it as a sound credit. We view its secondary levels as in line with where we would expect it to trade, and so continue with our Market perform recommendation.
Recommendation Reviewed: January 07, 2025
Recommendation Changed: September 22, 2020
Who We Recommend
International Container Terminal Services Inc
BDO Unibank
Woori Financial Group