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Standard & Poor’s Ratings Services has affirmed its ‘A-/A-2’ long- and short-term foreign currency ratings and ‘A-1’ short-term local currency rating of the Korea Development Bank (KDB) despite the bank’s announcement of a W469bn (US$384mn) loss in the first quarter of 2003. The rating outlook remains stable. The loss stemmed from write-downs in equity holdings after new accounting regulations and from provisioning against KDB’s loan exposure to SK Global

“KDB’s rating is based on its strong public policy role,” says John Chambers, managing director at Standard & Poor’s Sovereign Ratings Group. “It is the key financial instrument of the government for implementing its industrial policy; it has enjoyed repeated capital support in the past from its sole shareholder, the Republic of Korea (local currency A+/Stable/A-1; foreign currency A-/Stable/A-2); and it is an important tool in carrying out financial market stabilisation efforts.”

KDB management expects the bank to be profitable for the remainder of 2003. If KDB’s 2003 results end in a loss greater than its retained earnings and capital reserves of W338bn, the government is obliged by Article 44 of the KDB Act to cover the shortfall.

“In the past five years, KDB has repeatedly been an important source of liquidity for portions of the nonbank financial markets when they have lost market access. Most recently, KDB took part in providing an emergency bridging loan to Korea’s troubled credit card sector. KDB’s ratings should track those of the republic as long as it maintains its strong public policy role and continues to be wholly owned by the government,” Chambers says.