Moody's questions KDB's 'double post' strategy in Hong Kong

Korea Development Bank headquarters in Seoul / Courtesy of Korea Development Bank

By Lee Min-hyung

Moody's Investors Service questioned the Korea Development Bank's (KDB) “double-post” strategy in Hong Kong, downgrading KDB Asia's ratings outlook to “negative.”

Early this year, the state-run bank specified its plan to finish establishing one more branch office there by the end of 2021. The lender is currently operating KDB Asia, its head office there in charge of managing its overall regional operations in Asia outside Korea.

But the ratings agency remained skeptical over whether KDB Asia would be able to maintain its reputation as the lender's regional control tower, after the establishment of another branch office.

“Moody's has changed the outlook on KDB Asia's ratings to negative from stable, reflecting possible changes to KDB Asia's strategic importance to KDB's business in Asia, after the establishment of KDB's branch in Hong Kong,” the agency said Tuesday in a report for investors.

Another reason behind the credit downgrade is because of KDB Asia's possibly reduced operational integration with KDB, Moody's said.

“KDB's newly established branch in Hong Kong may take on more business related to KDB's policy mandate, even though Moody's continues to expect the bank to have a very strong liquidity and capital commitment to KDB Asia,” it said.

In February this year, KDB referred to the plan to build another branch there as a “double-post strategy” to help speed up its expansion into more Asian regions, as part of the government's New Southern Policy drive for more economic cooperation with Southeast Asian nations.

Under the plan, KDB Asia will tighten its role as a regional base for investment banking, and the new branch will handle corporate finance and fundraising.

Korean banks have pushed for a similar overseas expansion strategy in recent years, with not just state-run, but commercial banks here diversifying their sales channels aggressively in relatively unsaturated Asian markets ― such as Myanmar and Indonesia.

KDB is also jumping on the bandwagon. The lender established its Yangon branch in Myanmar early this year and plans to set up an office in Vietnam's capital city of Hanoi. Last year, KDB also took over a controlling stake in Indonesia's PT Tifa Finance.

“Moody's could change KDB Asia's outlook to stable if KDB Asia maintains its significant policy role, its operations remain strongly aligned with KDB's, and its strategic importance to KDB is not diminished,” the ratings agency also noted.