Shinhan Bank -- Moody's assigns A1 to Shinhan Bank's AUD senior notes

The (P)A2 rating applies to dated or plain vanilla subordinated debt only; it does not apply to undated subordinated debt.

Moody's has also assigned an A1 rating to the proposed senior notes to be issued by Shinhan Bank, and which would be a drawdown from the program.

All the ratings have stable outlooks.

The ratings are subject to receipt of final documentation, the terms and conditions of which are not expected to change in any material way from the draft documents Moody's reviewed.

RATINGS RATIONALE

The ratings incorporate two factors: (1) the bank's standalone financial strength rating (BFSR) of C-, which maps to a baa1 standalone credit profile on the long-term scale; and (2) our assessment of the very high probability of government support (a component of joint default analysis, referred to as JDA).

The main drivers of Shinhan's baa1 standalone credit profile are: (1) its strong domestic franchise, (2) its strong profitability and asset quality, (3) its modest liquidity, (4) the substantial amount of debt at its parent (Shinhan Financial Group: SFG), which is a potential financial burden for the bank, and (5) its high credit risk concentration.

The bank has a strong domestic franchise as Korea's third largest bank with a 12.1% share in system assets and a 13.9% share in system deposits as of March 2012.

Its profitability and asset quality have been more stable through economic downturns -- when viewed against its major domestic peers -- as it has a more focused and well-defined strategy.

However, similar to other domestic banks, its funding and liquidity are weaker than many banks in Asia. Its ratio of loans and receivables to deposits in all currencies was 104% as of March 2012. In particular, its foreign currency liquidity has been weak due to its heavy dependence on market funding.

The bank's capital adequacy is not as strong as its core Tier 1 ratio of 10.7% suggests, given very high double leverage at SFG according to Moody's calculations. The high double leverage apparent at SFG implies the potential risk of the bank paying out high dividends to SFG.

In determining the BFSR of all Korean banks, including Shinhan, Moody's incorporates the "big event risk" nature of the Korean market.

Among domestic financial institutions, loan growth has the tendency to focus on similar obligor segments, and the banks collectively tend to be hit by similar sector concentrations in economic downturns.

Moreover, high credit risk concentration is another reason for the big event risk. As of end-2011, Shinhan's top 20 group exposures were equivalent to 151% of the bank's tier-1 capital, or 700% of 2011 pre-provision income.

In Moody's assessment, support by the Korean government for Shinhan in a systemic crisis would be very high. This view is predicated on the bank's importance as the third-largest player in Korea's banking system. The expected support provides a three-notch lift for the foreign currency long-term senior unsecured debt rating from the baa1 standalone credit profile.

An upgrade of Shinhan's long-term deposit or debt ratings could occur if its BFSR is upgraded to C and Korea's A1 sovereign rating is upgraded.

Moody's would consider upgrading the BFSR in two circumstances. First, the proportion of short-term foreign currency liabilities to total foreign currency liabilities -- that exclude liabilities without maturities -- at Shinhan falls below 60% (76% at December 2011). Second, the ratio of investment in subsidiaries to shareholders' equity drops to around 115% (129% at March 2012) in Shinhan Financial Group's unconsolidated financial statements.

A downgrade of Shinhan's long-term deposit or debt ratings could occur in two circumstances: a downgrade of its BFSR, or a downgrade of Korea's A1 sovereign rating.

Moody's would consider downgrading the BFSR in two circumstances: (1) its core Tier 1 capital ratio drops below 9%, or (2) its NPL ratio is on course to rise to 4% or above.

The program's ratings do not immediately apply to any other individual notes issued under the Program. Ratings on individual notes issued under the program will be subject to Moody's satisfactory review of the terms and conditions set forth in the final prospectuses, supplements, or offering memorandums of the notes to be issued.

Furthermore, Moody's does not intend to assign ratings to individual notes issued under the program with features linked to the performance of another obligor (credit-linked notes). Nor does it intend to assign ratings to notes for which payment of principal or interest is variable and contractually dependent on the occurrence of a non-credit-linked event or the performance of an index (non-credit-linked notes). The only exception will be for notes whose principal and coupon payments are affected by standard sources of variation (for more information, please see Moody's Special Comment, "Moody's Update on Rating Debt Obligations with Variable Promises," June 2009).

The principal methodology used in this rating was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Shinhan Bank is headquartered in Seoul. It reported total assets of KRW234 trillion (USD204 billion) at the end of March 2012.

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