Moody's Affirms Busan Bank's Ratings Amidst Credit Profile Pressure

Strategic Insights -

Moody's has affirmed Busan Bank's A2 long-term foreign currency and local currency bank deposit ratings, its P-1 short-term foreign currency and local currency bank deposit ratings, and its long-term/short-term Counterparty Risk Ratings, amidst a deteriorating asset quality and weak economic growth. The bank's problem loans to gross loans ratio increased to 1.1% as of 31 March 2025, and its annualized net income to tangible assets ratio declined to 0.4% in the first quarter of 2025. Moody's expects a time lag before the declining interest rate and the government's planned supplementary budget to lead to better repayment capacity of borrowers and economic activities.

Key Takeaways:

  • Moody's has affirmed Busan Bank's A2 long-term foreign currency and local currency bank deposit ratings, its P-1 short-term foreign currency and local currency bank deposit ratings, and its long-term/short-term Counterparty Risk Ratings (CRRs) and Counterparty Risk (CR) Assessments.
  • The bank's asset quality has deteriorated due to weak economic growth, sluggish domestic consumption, and slowing exports, with its problem loans to gross loans ratio increasing to 1.1% as of 31 March 2025.
  • Moody's expects a time lag before the declining interest rate and the government's planned supplementary budget to lead to better repayment capacity of borrowers and economic activities, during which Busan Bank's asset quality and profitability metrics may further weaken.
  • The bank's annualized net income to tangible assets ratio declined to 0.4% in the first quarter of 2025, and its loan-to-deposit ratio remained high at near 100% as of 31 March 2025.
  • Moody's considered BNK Financial Group Inc.'s (BNK FG) high double leverage ratio (127.5% as of 31 March 2025) when assessing Busan Bank's capital adequacy, and expects the bank to maintain a strong funding structure underpinned by its solid banking franchise in its home region.
  • The bank's ratings incorporate (1) its baa1 Baseline Credit Assessment; and (2) a two-notch uplift of government support reflecting a very high level of support from the Government of Korea (Aa2 stable).

Statistics:

  • Problem loans to gross loans ratio: 1.1% (31 March 2025), 0.9% (31 December 2024), 0.5% (31 December 2023)
  • Annualized net income to tangible assets ratio: 0.4% (first quarter of 2025)
  • Loan-to-deposit ratio: near 100% (31 March 2025)
  • BNK FG's double leverage ratio: 127.5% (31 March 2025)
  • Busan Bank's consolidated asset size: KRW79.3 trillion ($54.1 billion) (31 March 2025)

Sources:

  • Moody's Ratings, "Moody's affirms Busan Bank's A2 long-term foreign currency and local currency bank deposit ratings, and maintains B1 CFR" (31 March 2025)
  • https://ratings.moodys.com/rmc-documents/432741 (Banks methodology published in November 2024)
  • https://ratings.moodys.com (Rating Methodologies page)