Hana Bank Canada's credit rating held at its current level. The long- and short-term deposit ratings remain A1/P-1 and the long- and short-term issuer ratings remain A2/P-1, and the outlook on the long-term deposit and issuer ratings was assigned as "Stable."
Global credit rating agency Moody's said on the 27th that it is maintaining these credit ratings for KEB Hana Bank Canada. A stable outlook means there is not much room for the ratings to change over the medium term. Moody's expects no major change in credit quality over the next 12 to 18 months, citing solid capital capacity, good asset quality stemming from conservative lending standards and high profitability compared with peer banks.
The subsidiary's baseline credit assessment (BCA) was rated baa1. Moody's added one notch to reflect the likelihood of support from its parent Hana Bank (Aa3, stable), and added loss given failure (LGF) analysis results to raise the deposit rating by two more notches and the issuer rating by one more notch. This reflects that Hana Bank owns 100% of the shares, that the unit has a large strategic weight in its overseas business, and that reputational risk is high because it uses the same brand. The likelihood of support from the Canadian government was assessed as low because the unit is not included among domestic systemically important banks (D-SIBs).
Hana Bank Canada is headquartered in Toronto and had total assets of 2.3 billion Canadian dollars at the end of last year. At that point its tangible common equity to risk-weighted assets (TCE/RWA) ratio was 26.9%, slightly higher than 26.1% a year earlier, and remained above that of peer banks in Canada. A high share of collateralized loans with low risk weights was also cited as a factor supporting the capital ratio.
However, profitability softened somewhat. Because loan margins shrank as interest rates fell, the ratio of net income to tangible assets declined from 0.7% in 2024 to 0.6% last year. Moody's expects that if the bank increases high-yield corporate lending and mortgages written five years ago are renewed at higher rates, net interest margin (NIM) will improve and profitability will recover somewhat.
Weaknesses cited were the concentration of its business on one side and a fragile funding and liquidity structure. Its loans are concentrated mainly in residential and commercial mortgages and it relies heavily on brokered deposits, so it is not easy to raise funds from the market. Its core liquid assets to tangible banking assets ratio at the end of last year also stood at only 4.8%. Even so, credit line commitments provided by Hana Bank ease the liquidity burden to some extent, and the liquidity coverage ratio (LCR) has greatly exceeded 100% over the past five years.
Moody's said that if Hana Bank's ratings change, the Canadian unit's ratings could also be adjusted in the same direction. It said it would consider raising the BCA if the core liquid assets ratio, taking into account the parent's credit line, exceeds 35%, and lowering it if it falls below 7%.
Moody's added, "We expect it to maintain solid asset quality despite macro-environment uncertainty from weakening trade relations between Canada and the U.S." and "Because of the high share of collateralized loans, even if a borrower defaults, non-performing loans can be recovered by disposing of collateral."