KB Kookmin Card rejects Fitch's ratings downgrade
The KB Kookmin Card headquarters in Seoul / Courtesy of KB Kookmin Card
By Park Jae-hyuk
KB Kookmin Card is facing growing concerns over its international creditworthiness after the credit card issuing unit of KB Financial Group requested Fitch Ratings to withdraw its ratings that were downgraded recently amid the COVID-19 pandemic.
Following the request, the global credit-rating agency announced its withdrawal of KB Kookmin Card's rating, Thursday, a month after it downgraded the card firm's long-term issuer default rating (IDR) to BBB+ from A- with a negative outlook.
“The ratings have simultaneously been withdrawn,” Fitch analyst Matt Choi said in a report.
When Fitch downgraded KB Kookmin Card's ratings on April 29, the agency cited KB Financial Group's weakening ability to support its credit card subsidiary. The card firm was also expected to face further ratings downgrades, considering Fitch's negative outlook.
“This is due to two factors, the first being the economic impact of the coronavirus pandemic and the second being the impact of the bank holding company's rapidly rising common-equity double leverage and eroding consolidated capital buffers, mainly due to its continued expansion into non-bank operations,” Choi said at that time.
“The negative outlook reflects our expectation that KB Financial Group's ability to support KB Kookmin Card could deteriorate further if the pandemic extends longer than our base-case scenario.”
A capital market insider said investors could doubt a company's soundness, if it asks rating agencies to remove it from their lists of businesses subject to their credit assessments.
In response, KB Kookmin Card said it does not need corporate credit ratings.
“Because we've only issued asset-backed securities overseas, the recent withdrawal of corporate credit ratings will not cause any problems with us attracting foreign investments,” a KB Kookmin Card spokesman said.
However, KB Kookmin Card had boasted of the corporate credit ratings from Fitch, until the agency downgraded its ratings.
When it got an A- in its long-term IDR in July 2019 for three consecutive years, the card firm said in its press release that it would pursue overseas expansion and attract foreign investments, based on its high corporate credit ratings.
Moreover, the company did not ask Moody's Investors Services to withdraw its corporate credit ratings. Moody's has maintained KB Kookmin Card's A2 ratings with a stable outlook.
Critics regarded KB Kookmin Card's request for withdrawal of Fitch's rating action as a form of “rating shopping,” which refers to companies asking credit rating agencies to withdraw their unfavorable ratings.
The Financial Supervisory Service has tightened its supervision of the scheme, because it hinders rating agencies from making fair evaluations.