Despite Middle East Risks, Banks Target Niche Strategies in the Foreign Currency Bond Race

Although uncertainty in the global financial market has increased due to the aftermath of the Middle East war, domestic banks have either successfully issued foreign currency bonds or are in the process of doing so. This is an exceptional move, considering that the economic outlook for Asian countries, including Korea, has worsened due to the war and the KRW-USD exchange rate surged sharply. Experts say this demonstrates the ability of domestic banks to secure funding even during a crisis, thanks to the high level of trust from global investors and their niche strategies.

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According to the financial sector on April 25, KB Kookmin Bank is planning to issue senior unsecured public bonds worth between 500 million and 700 million dollars as early as next week. Last week, the bank conducted a non-deal roadshow in key Asian hubs such as Taiwan, Hong Kong, and Singapore to gauge market sentiment, and has since been weighing the optimal timing for issuance.

During the roadshow, global investors gave high marks to Korea’s strong sovereign credit rating. KB Kookmin Bank’s position as a leading domestic bank also helped bolster investor confidence. A KB Kookmin Bank official stated, “Despite the aftermath of the Middle East war, there was great interest in KB Kookmin Bank’s new issuance. We have managed our credit curve through annual public offerings, and our growth, profitability, and soundness indicators have remained stable, so there were no concerns about our creditworthiness.”

Shinhan Bank and Hana Bank also successfully issued foreign currency bonds this month. Both banks seized the brief lull in the Middle East conflict to proceed swiftly with their issuances. Shinhan Bank had been closely monitoring investor demand amid heightened global market volatility caused by the war, and once the market atmosphere improved, promptly initiated bookbuilding. As a result, the final credit spread was set 0.37 percentage points lower than the initial guidance, enabling the bank to complete a 600 million dollar senior global foreign currency bond offering. By overcoming market instability, the bank succeeded in raising funds at a low interest rate.

Similarly, on April 8, Hana Bank immediately began bookbuilding after the United States and Iran agreed to a two-week ceasefire, and confirmed the issuance of a 600 million euro (1.047 trillion won) green covered bond (dual recourse). Hana Bank reduced the credit spread from the initially proposed 0.39 percentage points to 0.35 percentage points thanks to strong bookbuilding demand, thereby lowering funding costs. The issuance amount was also increased from the initially planned 500 million euros to 600 million euros. The bank’s strategy of turning to the robust euro market instead of the highly volatile dollar market, and opting for the covered bond format backed by high-quality assets at a time of heightened preference for safe assets, paid off. Hana Bank’s covered bond received the highest ‘AAA’ rating from global credit rating agencies, and the green bond format further increased the likelihood of success.

An industry official said, “Despite the negative impact of the Middle East war, successful foreign currency bond issuances were possible thanks to strategies that quickly identified and capitalized on moments of market stabilization. The unwavering trust of global investors in Korea and domestic banks has also served as a solid foundation.” Korea’s credit default swap (CDS) premium rose to 35.85 basis points (1bp = 0.01 percentage points) as of March 30 following the Middle East war, but is now stabilizing at around 29 basis points. The CDS premiums for KB Kookmin Bank, Shinhan Bank, and Hana Bank also stood at between 33 and 45 basis points as of April 17, with the increase limited to within 10 basis points despite the negative developments in the Middle East.

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