Suhyup Bank

The stable outlook on Suhyup reflects our view that the bank will maintain an adequate capital buffer over the next 18-24 months, backed by a gradual improvement in profitability. We believe Suhyup's adequate underwriting standards and improved risk management will likely limit any significant deterioration in asset quality. The outlook also reflects our view that Suhyup has a very high likelihood of receiving extraordinary support from the Korean government, if needed, over the period. We could downgrade Suhyup if the bank's asset quality significantly weakens along with a sharp increase in credit costs compared with the industry peer average. We believe an upgrade on Suhyup is unlikely over the next 18-24 months. We could upgrade Suhyup if its capitalization strengthens,

...Suhyup Bank's adequate capitalization and gradual improvement in profitability support its creditworthiness. We forecast the Korea-based bank's risk-adjusted capital (RAC) ratio to moderately decline to 9.5%-9.9% in the next two years from about 10.1% as of end-2020 because of business growth and increasing dividend payouts to the parent. This is despite our expectation of a gradual improvement in profitability. We anticipate Suhyup's net interest margins will continue to expand amid rising domestic interest rates. We believe Suhyup will maintain broadly stable asset quality over the next two years. The bank's adequate underwriting practices should lead to a gradual decline in its credit costs as the Korean economy recovers from the COVID-19 pandemic. Suhyup's nonperforming asset (NPA) ratio was about 0.4% as of end-June 2021, compared with about 0.5% as of end-2020, broadly in line with the domestic commercial bank peers'. Suhyup to continue to have a modest retail market presence compared...

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