Fitch rates Shinhan notes BBB+

Fitch Ratings said it assigned an expected rating of BBB+ to South Korea-based Shinhan Bank's planned $300 million issue of upper tier 2 subordinated notes. At the same time, Fitch upgraded the existing upper tier 2 notes issued by Shinhan and its sister bank, Chohung Bank, to BBB+ from BBB and affirmed the remaining ratings of both banks, including both banks' A- long-term foreign currency ratings.

The outlook is stable.

Fitch said the upgrade reflects both banks' improved stand-alone financial status in 2005: Shinhan reported 774 billion Korean won in net income and Chohung registered 757 billon Korean won and improved its non-performing loan ratio to 1.1% from 1.9% at Dec. 31, 2004.

Shinhan and Chohung are both owned by the Shinhan Financial Group and are set to merge on April 1 under the Shinhan name, the agency said. On completion of the merger, the two banks will form the second-largest banking group in Korea with KRW147 trillion in assets.

Fitch said it views Shinhan Financial's on-going efforts to raise Chohung's risk management capabilities to Shinhan's level as a significant contributor to Chohung's improved results in 2004 and 2005. The agency also noted that the integration risk has significantly moderated. Given this and the other aforementioned improvements, Fitch predicted that the merger will be successful.

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