Hyundai Capital Issuer Summary

Report date: 2026-05-16
Issuer: Hyundai Capital Services, Inc.
Ticker: HYUCAP
Sector: South Korea specialty credit finance / auto finance
Primary credit focus: issuer credit, senior unsecured bonds, market funding including foreign-currency bonds, and the distinction between Hyundai Motor Group support expectations and explicit guarantees

1. Business Snapshot and Recent Developments

Hyundai Capital Services, Inc. is a South Korean specialty credit finance company centred on auto finance, almost wholly owned by Hyundai Motor Company and Kia Corporation. As the finance company responsible for sales financing for Hyundai, Kia and Genesis vehicles, the company’s core businesses are domestic new-car instalment finance, leasing, rental and used-car finance, while it also has mortgage loans, PF and other non-auto assets. It is not a bank and does not have a deposit base. The starting point for credit analysis is therefore to assess both its strategic importance as HMG’s sales finance arm and its liquidity and refinancing risk as a market-funded non-bank financial institution.

As of 1Q26, HCS had financial assets of KRW 35.9tn, total assets of KRW 43.1tn, equity of KRW 7.6tn and borrowings and bonds of KRW 33.7tn. Auto-related assets accounted for 82.3% of financial assets and non-auto assets for 17.7%, giving the company a clear auto-finance credit profile. This differs from HMG-related non-bank issuers such as Hyundai Card, whose business is centred on cards and consumer credit. HCS’s assets are closely linked to auto sales, vehicle values, sales finance networks and the group’s new-car sales cycle, giving it a more direct connection to HMG’s auto sales than a card company. On the other hand, the liabilities supporting these assets are bonds, overseas bonds, ABS, bank borrowings and CP, rather than stable deposits as in a bank.

Recent credit developments are more a confirmation of continued strong capital, asset quality and ratings than a deterioration story. In 2025, profit before tax increased to KRW 631.6bn and net income to KRW 511.4bn, while 1Q26 profit before tax and net income were KRW 229.9bn and KRW 194.9bn, respectively. The 30+ delinquency ratio declined from 0.92% in 2023 to 0.88% in 2024, 0.82% in 2025 and 0.78% in 1Q26, while the substandard and below asset ratio improved from 2.17% to 1.98%. Provision coverage against 30+ receivables increased to 298.1%. At least based on what is visible in public IR materials, asset quality is stable or modestly improving.

HCS is also highly positioned among Korean non-bank financial institutions in rating terms. Company disclosures show Moody’s A3 Stable, S&P A- Stable, Fitch A- Stable, JCR AA- Stable, and AA+ Stable / CP A1 from the three domestic rating agencies. Its international ratings are treated at a level close to Hyundai Motor / Kia. This rating level should be viewed not only as a reflection of standalone financials, but also as significantly incorporating strategic importance within HMG and support expectations. However, support expectations are not explicit guarantees. In analysing HYUCAP bonds, it is necessary to distinguish issuer credit from the guarantee, covenants, governing law, cross-default and other terms of each individual bond.

Without rushing to a first-coverage conclusion, HCS can be framed as a “highly rated non-bank financial institution responsible for HMG’s sales finance”. Its business franchise and ratings are strong, but the floor of the credit is shaped by market funding, short-term maturities, foreign-currency funding, non-auto assets and the nature of HMG support. Future credit deterioration is more likely to begin with a slowdown in HMG sales, weaker auto collateral values, delinquencies or PF losses in non-auto assets, a worsening refinancing environment including overseas bonds and ABS, or a change in rating agencies’ view of support, rather than with a single quarterly loss.

2. Industry Position and Franchise Strength

The core of HCS’s business franchise is its long-standing presence in the Korean auto finance market and its proximity to Hyundai Motor / Kia’s sales channels. The company profile states that HCS has maintained the leading position in the Korean auto finance market since introducing instalment finance in Korea in 1996. This “market leadership” is not merely brand value for issuer credit. It relates to customer access at the point of sale, loan and lease origination volume, customer data, vehicle collateral, residual value management and the platform for ABS issuance. The strength of a captive finance company lies in the fact that the origination channel is tied to the parent group’s sales activity, rather than being dispersed across a general consumer finance company.

The relationship with HMG strongly supports HCS’s competitiveness. In the 1Q26 IR materials, the shareholding structure is shown as Hyundai Motor 59.7% and Kia 40.1%, meaning HMG owns almost all of the company. This gives HCS contact points with manufacturing and sales companies, dealers and customers as the provider of finance for group vehicle sales. Sales finance is a function that matters to auto manufacturers for sales promotion, customer retention, leasing, rental, used-car circulation, and adaptation to electrification and subscription-type services. HCS therefore has greater necessity within the group than a simple independent lender.

However, being an HMG captive does not eliminate credit risk. Auto finance assets are affected by sales volume, vehicle prices, interest rates, consumer income, used-car prices, residual value risk and competitive conditions. Strong HMG sales support new origination and the customer base, but if credit standards or pricing terms are loosened to promote sales, future delinquencies and residual value losses can emerge with a lag. HCS also has a global business footprint, not only a Korean business, so FX, hedging costs, country-specific regulation and liquidity at overseas finance companies also require attention.

The company profile describes Hyundai Capital’s global footprint as 19 entities in 14 countries and global assets of KRW 196tn at end-2024. This KRW 196tn is a global network indicator in the company profile and is not necessarily the same scope as the KRW 43.1tn of total assets used to measure the repayment capacity of the issuer, HCS on a consolidated basis. This report’s assessment of financials and repayment capacity mainly uses the publicly available HCS consolidated financials and 1Q26 IR materials. The global footprint indicates the depth of HMG’s sales finance function, but the profitability, capital regulation, funding and credit costs of each country subsidiary have not been sufficiently disaggregated. It is therefore both a credit support factor and an additional transparency issue to monitor.

In peer comparison, HCS is more directly tied to HMG’s auto sales than Hyundai Card and is more highly rated. Hyundai Card is an issuer to analyse through the cycle of card payments, PLCC, membership base, card loans and other consumer finance exposures, while HCS is an issuer to analyse through the balance of vehicles, leasing, mortgages, PF and market funding. HCS’s strengths are its concentration in auto and its strategic role as the group’s sales finance company. Its weakness is that, given its large asset base and large funding requirement, the impact would be significant if market access were temporarily closed.

3. Segment Assessment

The most important point in segment assessment for HCS is to separate Auto and Non-Auto. Of financial assets of KRW 35.9tn as of 1Q26, Auto accounted for KRW 29.6tn, or 82.3%. The breakdown was New car KRW 16.1tn, Lease/rent KRW 8.9tn and Used car KRW 4.5tn. The company therefore has meaningful exposure not only to new-car instalment finance but also to leasing, rental and used-car finance. Concentration in Auto indicates strong contact with HMG sales, collateral value and customer acquisition, while also increasing sensitivity to the auto sales cycle and fluctuations in used-car prices.

Non-Auto was KRW 6.3tn in 1Q26, or 17.7% of the total. The breakdown was Mortgage KRW 3.6tn, PF KRW 1.2tn, Personal loan KRW 0.4tn and Others KRW 1.1tn. Non-Auto assets have weaker HMG captive characteristics than Auto assets and a different credit risk profile. Mortgages are affected by household debt, interest rates, collateral values and regional property prices, while PF depends on project-by-project sponsors, collateral, sales progress, LTV and repayment sources. The company’s Non-Auto ratio is just under 20%, not large enough at present to dominate the overall credit, but in a stressed Korean real estate or PF environment it would become the first constraint investors should examine.

Unit: KRW bn, except ratios.

Within Auto, the growth in Lease/rent and Used car is notable. New car assets declined slightly from KRW 16.8tn in 2023 to KRW 16.1tn in 1Q26, while Lease/rent increased from KRW 7.9tn to KRW 8.9tn and Used car increased from KRW 3.6tn to KRW 4.5tn. This indicates that the portfolio is expanding beyond simple new-car instalment finance to include vehicle usage models and the used-car cycle. From a credit perspective, this diversifies customer contact and broadens revenue sources, but it also makes residual value, used-car prices and vehicle value at recovery more important to manage.

PF declined from KRW 1.5tn in 2023 to KRW 1.2tn in 1Q26 and, based on public IR materials, has not grown materially. However, PF is a segment where losses can jump based on the quality of individual projects rather than absolute exposure alone. Even if the PF balance is falling, loss absorption capacity remains a provisional assessment unless collateral quality, project progress, sponsor credit quality, regional concentration and the presence of bridge loans are visible. HCS investors therefore need to view the high Auto ratio as a credit support, while continuing to check whether the content of Non-Auto becomes a “hole” in the credit view.

4. Financial Profile and Analysis

From 2023 to 1Q26, HCS’s financial profile did not show any major deterioration in earnings, capital or asset quality. Operating revenue increased from KRW 4.48tn in 2023 to KRW 4.98tn in 2025, and 1Q26 operating revenue was KRW 1.27tn. Profit before tax was KRW 432.7bn in 2023, KRW 548.7bn in 2024, KRW 631.6bn in 2025 and KRW 229.9bn in 1Q26. Net income was KRW 511.4bn in 2025 and KRW 194.9bn in 1Q26, at a level that supports internal capital generation.

Unit: KRW bn.

In reading earnings, it is important to note that the increase in 2025 profit was supported not only by simple operating revenue growth but also by non-operating gains and equity-method income. Operating income was broadly flat at KRW 471.8bn in 2024 and KRW 466.1bn in 2025, while the increase in profit before tax was supported by KRW 165.5bn of non-operating income and KRW 127.1bn of equity-method income. It is therefore difficult to say that underlying operating profitability improved sharply. Still, the company increased profit before tax even as bad debt expense rose to KRW 331.9bn, suggesting that current earnings capacity has room to absorb credit costs.

The balance sheet shows growth in both assets and capital. Total assets increased from KRW 39.6tn in 2023 to KRW 43.1tn in 1Q26, while equity increased from KRW 6.0tn to KRW 7.6tn. Borrowings and bonds rose from KRW 31.8tn to KRW 33.7tn, but asset leverage declined from 7.2x in 2023 to 6.4x in 1Q26 due to the increase in capital. Although the absolute debt burden is large for a market-funded non-bank, the recent direction is an improvement in capital headroom.

Unit: KRW bn.

The aggregate asset-quality metrics look quite solid in public IR. The 30+ delinquency ratio was 0.78%, while the substandard and below asset ratio was 1.98%, with both measures showing modest improvement over the past three years. Provision coverage also increased to 298.1% of 30+ receivables. These figures indicate that HCS is not currently in a phase of rapid credit deterioration. In particular, against a market backdrop of concerns about Korean household debt and real estate PF, it is positive that the PF balance is not expanding and the overall delinquency ratio is declining. However, these are aggregate company-disclosed metrics and do not confirm that each portfolio — PF, mortgages, used cars, and leasing/rental — is sound in terms of delinquency ratio, LTV, region, sponsor, vintage and individual asset quality.

The metrics used here have different definitions. Financial assets, asset leverage, liquidity, the 30+ delinquency ratio and the substandard and below asset ratio in the 1Q26 IR materials are management disclosure metrics and may not correspond perfectly one-to-one with audited K-IFRS consolidated financial statement line items. The total assets, borrowings, bonds, equity, profit before tax and net income in the 2025 audit report are on a K-IFRS consolidated basis, while the adjusted capital ratio is disclosed as a regulatory metric on a parent-company standalone basis. This report uses these metrics together to assess levels and direction, but the definitions of each metric need to be reconfirmed for strict ratio calculations or covenant testing.

Unit: KRW bn, except ratios and multiples.

However, while liquidity appears sufficient in absolute terms, it declined from KRW 7.0tn in 2023 to KRW 5.5tn in 1Q26. Given borrowings and bonds of around KRW 32tn, it is important that capital market access remains normal. The 1Q26 six-month liquidity coverage ratio was 123% and the ALM ratio was 115%, both above the company-disclosed guideline of 100%, but the headroom is not unlimited. Liquidity supports HCS’s credit quality, but it is a support premised on ratings and market access. Its importance would increase rapidly in a stress scenario involving both rating pressure and closure of foreign-currency markets.

Cash flow needs to be read in the context of a financial company. The 2025 audit report shows negative operating cash flow, but this cannot immediately be interpreted as a business cash flow deficit in the same way as for a non-financial corporate. For a financial company, increases in loans, instalment assets and lease assets, as well as securities, borrowings and bond issuance and redemption, have a large impact on operating, investing and financing cash flow, reflecting asset growth and maturity management. HCS’s repayment capacity is better assessed by combining asset quality, collections, capital, liquidity, refinancing access and HMG support expectations, rather than by looking at operating cash flow alone.

Overall, the financial profile currently supports credit quality. Earnings can absorb credit costs, capital has increased, leverage has declined and delinquency ratios are low. However, this assessment includes the condition that market funding remains available. HCS’s financial profile is not protected by a deposit base like a bank’s; it is sensitive to liability maturities, foreign-currency funding, the ABS market and the domestic bond market.

5. Structural Considerations for Bondholders

For HYUCAP creditors, the most important structural point is that HCS is almost wholly owned by HMG, but this is separate from whether individual bonds are explicitly guaranteed by HMC / Kia. HCS’s ratings are strongly supported by its strategic importance as an HMG captive and expectations of parental support. However, shareholder support expectations are not the same as a legally binding contract guaranteeing repayment of debt. Bond investors need to distinguish issuer-level support expectations, rating agencies’ support assessments and the guarantee, covenants and governing law of individual bonds.

HCS is a financial subsidiary within an industrial corporate group and issues debt as a separate legal entity from the parent companies’ manufacturing and sales businesses. HCS bondholders therefore depend primarily on HCS’s financial assets, collections, liquidity and refinancing capacity. HMC or Kia vehicle sales may provide support, but that is indirect support through business, strategy and ratings, not a direct source of recovery for individual debt. This is important to avoid treating bonds bearing the HMG name as equivalent to “manufacturer bonds” or “guaranteed bonds”.

At the same time, HCS’s importance to HMG should not be underestimated. Sales finance companies are closely linked to auto manufacturers’ sales promotion, leasing and rental, residual value management, customer retention and overseas sales finance expansion. If a finance subsidiary loses market access, the parent group’s sales activities may also be adversely affected. For this reason, rating agencies and the market appear to incorporate a degree of support expectation for HCS. HCS’s high international ratings are consistent with this view.

Bond terms remain partly unverified. The 2026 GMTN Offering Circular was identified on SGX, but local retrieval was not completed due to access controls. This report therefore focuses on issuer credit and does not make definitive statements on individual bond negative pledge, cross default, change of control, tax gross-up, events of default, guarantee status or governing law. For HYUCAP investment decisions, even for the same issuer, terms and relative value may differ by currency, tenor, programme and issue date.

The structural weakness is concentrated in the fact that HCS is a financial company without deposits and supports its assets through market funding. Its ability to use multiple channels — bond markets, foreign-currency bond markets, ABS markets and bank lines — is a strength, but all of these depend on the risk appetite of investors and banks. Funding is likely to remain stable while ratings are high, but if asset quality deterioration or a weaker view of HMG support occurs, funding cost and refinancing availability could deteriorate at the same time.

ABS offers clear benefits in terms of liquidity and funding diversification, but it also creates separate issues from the perspective of unsecured creditors. If securitisation or secured funding increases, the depth of unencumbered assets effectively available to unsecured creditors in a stress, additional assets that can be securitised, and asset encumbrance under existing secured funding become important. In HCS’s 1Q26 funding mix, ABS accounted for 15%, but this report has not verified the specific collateral pools, credit enhancement, overcollateralisation, remaining tenor, retained interests or effective asset availability for unsecured bondholders. When HYUCAP is analysed as unsecured debt, this point is directly relevant to relative value and recovery prospects.

6. Capital Structure, Liquidity and Funding

HCS’s liability structure combines domestic bonds at the core with overseas bonds, ABS, bank borrowings and CP. In 1Q26, the funding mix was domestic bonds 55%, overseas bonds 16%, ABS 15%, bank borrowings 11% and CP 3%. The high share of domestic bonds demonstrates its strong ratings and investor base in the Korean market, while the company also uses overseas bonds and ABS to a meaningful extent, meaning its funding environment spans both domestic and overseas markets.

Unit: share.

On a company-disclosed basis, liquidity was KRW 5.5tn in 1Q26, consisting of KRW 1.8tn of cash and KRW 3.7tn of credit lines. The six-month liquidity coverage ratio was 123% and the ALM ratio was 115%, both above the company-disclosed guideline of 100%. This indicates a certain buffer for normal short-term refinancing. However, more than half of liquidity consists of credit lines, so availability in a stress, legal commitment, currency, bank concentration and collateral terms need to be confirmed.

The maturity note in the 2025 audit report shows, on an undiscounted basis, borrowings of KRW 462.7bn due within three months and KRW 1,262.2bn due in three to twelve months, and bonds of KRW 3,267.7bn due within three months and KRW 6,185.5bn due in three to twelve months. In total, borrowings and bond maturities within one year were approximately KRW 11.2tn on an undiscounted basis. On a carrying-value basis, current borrowings of KRW 1.6tn and current bonds of KRW 8.6tn total approximately KRW 10.2tn. This means that the 1Q26 liquidity balance of KRW 5.5tn is not a structure that can self-fund all one-year maturities in full. Even if manageable in normal conditions, it assumes continued market access and availability of bank lines. Large maturities are normal for a financial company, but if there is a shock to ratings, investor demand, the ABS market, foreign-currency markets or bank lines, the effectiveness of the liquidity buffer will be tested.

Foreign-currency funding is disclosed in multiple currencies, including USD, JPY, AUD, CHF, CNY, EUR, HKD and SGD. HCS is said to hedge FX risk with derivatives, but in foreign-currency funding, hedging costs, counterparties, CSA, margin, collateral posting and cross-currency basis affect credit cost. Foreign-currency bonds are positive in expanding the issuer’s investor base, but in a stress, the ability to reopen foreign-currency markets, not only domestic won funding, becomes a monitoring item.

On capital, the adjusted capital ratio in the 2025 audit report is disclosed at 16.23% on a parent-company standalone basis, up from 15.51% in 2024. This provides ample headroom above the regulatory minimum of 7%. The asset leverage ratio in the 1Q26 IR materials was 6.4x, below the regulatory guideline referenced by the company. The company is also stated not to have paid dividends since 2021, and its stance of accumulating earnings into capital is credit positive.

The assessment in this section is that HCS’s funding is strong, but the source of that strength depends on “markets being open” and “high ratings”. Diversification across domestic bonds, overseas bonds, ABS, bank borrowings and CP is a clear support. On the other hand, because it lacks sticky funding such as deposits, deterioration in asset quality or a rating review may feed through to funding faster than for a bank.

7. Rating Agency View

HCS’s ratings are high relative to what standalone financial metrics alone would explain. Company disclosures show Moody’s A3 Stable, S&P A- Stable, Fitch A- Stable, JCR AA- Stable, and AA+ Stable / CP A1 from the three domestic rating agencies. This is a very strong rating level for a Korean non-bank financial institution, reflecting the combination of strategic importance as an auto captive, HMG’s credit quality, support expectations, and HCS’s own asset quality, capital and liquidity.

Rating strengths are HMG ownership and business linkage, the Auto-centred asset mix, its position in domestic auto finance, stable asset quality, capital headroom and liquidity management. The 1Q26 IR materials emphasise that the global ratings are at the same level as HMC/Kia. This indicates that rating agencies view HCS as an important financial subsidiary within HMG. However, ratings close to the same level and a guarantee of HCS debt by HMC/Kia are not the same thing.

Rating constraints are dependence on market funding, the non-bank business model, the cyclical sensitivity of asset quality, Non-Auto exposure and changes in expectations of parental support. If HMG’s auto business credit weakens, HCS’s strategic importance declines, or ownership or support posture changes, this could feed through to HCS’s ratings. In addition, if HCS’s own delinquency ratios, credit costs, leverage or liquidity deteriorate, rating headroom would narrow even with support expectations.

This report has not been able to review the full latest rating agency reports from all agencies. The details of each agency’s standalone credit assessment, incorporated support and rating-change triggers are therefore unverified. When investors assess individual bonds, they need to check the latest reports from Moody’s, S&P, Fitch and JCR for the extent of HMG support uplift, linkage to HMG ratings, downgrade triggers for HCS standalone metrics, and treatment of short-term and CP ratings.

My view is that the public metrics do not materially contradict the high assessment by rating agencies. HCS is more directly tied to HMG sales finance than Hyundai Card, asset quality is currently good and capital is solid. However, because the ratings appear to incorporate a meaningful degree of parental support expectation, HCS’s credit should not be read as a standalone A-category non-bank. It should be read as a non-bank treated at a level close to the A category with HMG support expectations included.

8. Credit Positioning

HCS is positioned as a high-end issuer among Korean non-bank financial institutions. Domestic ratings of AA+ and international ratings of A3/A-/A- place it in a strong category among market-funded financial companies. Compared with Hyundai Card, HCS is more directly involved in HMG’s auto sales and has higher international ratings. Whereas a card company’s risks depend heavily on cardholders, revolving credit and cash advances, merchant fee regulation and the consumer credit cycle, HCS depends on auto collateral, leasing and rental, vehicle values, sales finance and large bond maturities.

Compared with banks, HCS does not have a deposit base and differs from commercial bank senior debt supported by central-bank liquidity and deposit insurance. Bank credit analysis focuses on deposit outflows, NIM, CET1 and LCR, while for HCS, the roll-over of market funding, ABS, FX hedging, leverage, liquidity lines and support expectations are more important. Even if HCS’s ratings appear close to bank levels, the path through which liquidity risk materialises is different from that of a bank.

Compared with the operating companies HMC / Kia, HCS is part of the sales finance function and depends on the parent group’s business credit. HMC / Kia’s manufacturing and sales capabilities are a support, while HCS itself carries financial assets and bears credit costs and funding costs. HCS bonds are therefore a way to take HMG exposure, but they are not the same as the manufacturer’s operating-company bonds. Even when viewed as an investment in HMG exposure, it is necessary to check individual bond terms, issuer, guarantee, tenor, currency and spread.

Live spreads, OAS, Z-spreads and CDS have not been checked in this report, so relative value is not assessed definitively. From a credit fundamentals perspective alone, HCS is a strong investment-grade issuer with HMG support expectations incorporated and can be placed toward the high end among Korean non-banks. However, to price it as an A-category credit, investors need to assess whether the spread differential versus same-tenor Korean bank bonds, HMC/Kia bonds, Hyundai Card bonds, Korean financial holding company bonds and other auto-finance peer bonds adequately compensates for the absence of an explicit guarantee and dependence on market funding.

HCS’s credit is easy to hold in a portfolio as a stable HMG-related highly rated non-bank, but the risk profile can look different in normal times and stress periods. In normal times, support expectations, ratings and asset quality are at the forefront. In stress periods, the fact that HCS has no deposits, rolls large bond maturities each year, and also depends on foreign-currency funding and ABS comes to the forefront. This duality is the most important point in evaluating HYUCAP spreads.

9. Key Credit Strengths and Constraints

HCS’s first strength is its strategic importance as HMG’s auto sales finance company. Hyundai Motor and Kia own almost all of the company, and Auto accounts for more than 80% of financial assets, linking the company’s purpose to HMG’s sales, customers and vehicle cycle. This relationship makes market access and ratings easier to support than for a standalone non-bank.

The second strength is current asset quality stability. The 30+ delinquency ratio is 0.78%, the substandard and below asset ratio is 1.98%, and provision coverage is 298.1%. On the aggregate metrics visible in public IR materials, asset deterioration is not progressing. However, non-auto assets including PF and mortgages remain monitoring items. They account for just under 20% of balances, and while PF balances have declined since 2023, the quality of individual projects is unverified.

The third strength is capital and ratings. Equity increased from KRW 6.0tn in 2023 to KRW 7.6tn in 1Q26, and asset leverage declined to 6.4x. The 2025 adjusted capital ratio was 16.23%, well above the regulatory minimum. High domestic and international ratings and access to domestic bonds, overseas bonds, ABS and bank borrowings increase funding flexibility.

The first constraint is dependence on market funding. HCS has no deposits and supports its financial assets with borrowings and bonds in the KRW 33tn range. Diversification across domestic bonds 55%, overseas bonds 16%, ABS 15%, bank 11% and CP 3% is a strength, but all channels depend on market and bank risk appetite. It is strong while ratings are high, but if rating downgrades, higher interest rates, closure of foreign-currency markets and weakness in the ABS market occur at the same time, the funding structure itself becomes a constraint.

The second constraint is that HMG support expectations are not explicit guarantees. Issuer credit is supported by the relationship with HMG, but the legal protection of each individual bond must be checked separately. A deterioration in HMG’s credit quality, a change in ownership or support posture, or a reassessment of HCS’s strategic importance would affect ratings and market perception.

The third constraint is Non-Auto and vehicle value risk. Although the business is Auto-centred, HCS has approximately KRW 4.9tn in Mortgage and PF and KRW 6.3tn in total Non-Auto assets. PF project details are unverified, and the region, LTV and collateral value of mortgages are not visible in detail. In addition, growth in Lease/rent and Used car is a revenue opportunity, but could affect loss rates through fluctuations in used-car prices, residual values and recovery values.

10. Downside Scenarios and Monitoring Triggers

Realistic deterioration scenarios for HCS are likely to begin either with the HMG sales environment or with the financial market environment. If HMG’s sales volume, pricing or mix deteriorates, this would affect new sales finance origination, customer credit, vehicle residual values and used-car recovery values. Early symptoms would likely appear in slower new-car finance balances, higher loss rates in used cars or leasing/rental, modest increases in delinquency ratios and higher bad debt expense.

The second deterioration path is credit losses in non-auto assets. Mortgages and PF have risks different from auto collateral. If the Korean real estate or PF market comes under stress, PF delinquencies, rescheduling, lower collateral values and additional provisions could occur. PF balances are on a declining trend, but if there is project concentration, even a small balance can generate large losses. Metrics to monitor are PF balances, the substandard and below asset ratio, the 30+ delinquency ratio, bad debt expense, provision coverage and the breakdown of non-auto assets.

The third deterioration path is funding stress. If any of the domestic bond market, overseas bond market, ABS, bank lines or CP becomes constrained, refinancing costs would increase and the liquidity buffer would decline. The audit report shows large bond and borrowing maturities within one year. For HCS, it is therefore necessary to monitor the six-month liquidity coverage ratio, ALM ratio, unused committed lines, cash, securities, short-term debt, foreign-currency bond maturities and hedging costs. If liquidity coverage declines toward 100%, the CP ratio rises sharply, or refinancing of overseas bonds requires a large premium, the credit view should be reviewed.

Deterioration in the auto finance portfolio would appear not only as a decline in new-car sales volume but also as changes in vehicle prices and residual values. Changes in the EV ratio, mix of high-ASP vehicles, used-car prices, disposal prices of returned leased vehicles, and recovery rates after accidents or delinquencies can change loss severity even with the same delinquency ratio. In particular, because leasing/rental and used cars are growing, vehicle value and residual value management are monitoring items not visible from the headline auto-related ratio alone.

The fourth deterioration path is a change in support expectations. If HMG is downgraded, HMC / Kia earnings weaken, ownership declines, HCS’s group role diminishes, or rating agencies review the support uplift, HCS’s ratings could move even without a major change in standalone financials. For HYUCAP, it is necessary to monitor not only HCS’s financials but also HMC / Kia rating actions, HMG sales strategy, any reorganisation of group finance companies, parent-subsidiary transactions and dividend policy.

The regular triggers investors should monitor are as follows. First, whether the 30+ delinquency ratio rises to the mid-1% range and provision coverage declines. Second, whether loss rates rise in PF, Mortgage, Used car and Lease/rent. Third, whether asset leverage rises back into the 7x range and the adjusted capital ratio declines. Fourth, whether six-month liquidity coverage and ALM decline toward the guideline level. Fifth, whether domestic or international rating outlooks turn negative. Sixth, whether funding terms for foreign-currency bonds, ABS or bank lines deteriorate sharply.

11. Credit View and Monitoring Focus

Based on published ratings and public metrics, HCS is a high-end investment-grade issuer among Korean non-banks, treated at a level close to the A category with HMG support expectations included. Based on public metrics from 2025 to 1Q26, the direction is stable to modestly improving, and there is no visible data indicating imminent rapid credit deterioration. However, this stability assumes that HMG support expectations, asset quality and market funding access are maintained at the same time. If any one of these breaks, market perception may change faster than for a bank.

The largest credit support is its strategic importance as HMG’s auto sales finance company. Auto accounts for more than 80% of financial assets, Hyundai Motor and Kia own almost all of the company, and ratings are high, reflecting HMG support expectations. Asset quality is also currently good, with delinquency ratios declining and provision coverage high. Earnings and capital are also at levels that can currently absorb credit costs and asset growth.

The largest constraint on the assessment is that HCS is a market-funded non-bank without deposits. HCS supports its assets with bonds, overseas bonds, ABS, bank borrowings and CP, and refinances large maturities each period. Liquidity metrics are above guidelines, but total liquidity has declined since 2023, and one-year maturities exceed the liquidity buffer, making normal roll-over and market access assumptions central to the credit view. Within non-auto assets, mortgages and PF contain credit risks different from those of an auto finance captive.

HYUCAP investors should view HCS not as “explicitly guaranteed debt of HMC/Kia”, but as a “highly rated auto finance company with strong HMG support expectations incorporated”. Making this distinction clear helps avoid confusing issuer credit, individual bond terms and relative value. The rating and business franchise are strong, but legal guarantee status, tenor, currency, hedging, negative pledge, cross default and change of control need to be checked bond by bond.

Future monitoring should track shifts in HMG sales, the 30+ delinquency ratio, the substandard and below asset ratio, bad debt expense, losses in PF, Mortgage and Used car, asset leverage, the adjusted capital ratio, six-month liquidity coverage, ALM, short-term maturities, foreign-currency funding and domestic and international rating actions. In particular, if rising delinquency ratios and declining liquidity occur at the same time, HCS’s credit view could shift easily from stable to weakening. Conversely, as long as the Auto-centred asset mix, low delinquencies, capital accumulation and funding diversification are maintained, HYUCAP can continue to be viewed as a relatively strong issuer among Korean non-banks.

12. Short Summary & Conclusion

Hyundai Capital Services is HMG’s auto finance captive, almost wholly owned by Hyundai Motor and Kia, and is a highly rated Korean non-bank with Auto assets accounting for more than 80% of the total. Current delinquency ratios, provisions, capital and ratings are strong, and the credit view is stable. However, the ceiling on the assessment is set by the fact that HCS is a market-funded issuer without deposits and refinances large amounts of bonds, overseas bonds and ABS. HYUCAP can be treated as a strong credit with HMG support expectations incorporated, but should not be confused with debt explicitly guaranteed by HMC/Kia. Individual bond terms, liquidity, Non-Auto assets and rating outlooks need to be monitored continuously.

13. Sources

Primary sources reviewed

• Hyundai Capital Services, 1Q26 Earnings Release / IR Presentation.
  https://about.hyundaicapital.com/ir/iprnt/IRIRIP0101.hc
  Used for 1Q26 headline metrics, portfolio mix, funding mix, liquidity, asset quality, leverage, ratings and ownership.

• Hyundai Capital Services and Subsidiaries, Consolidated Financial Statements, December 31, 2025 and 2024.
  https://about.hyundaicapital.com/ir/adtrpt/IRIRAR0101.hc
  Used for audited balance sheet, income statement, cash flow context, maturity notes, borrowings, equity and adjusted capital ratio.

• Hyundai Capital Services, Company Overview and Company Report.
  https://about.hyundaicapital.com/au/cmporv/IRAUCO0101.hc
  Used for company profile, auto finance market positioning, HMG financial arm context and global presence.

• Hyundai Capital Services, official Credit Ratings page.
  https://about.hyundaicapital.com/ir/crdrts/IRIRCR0101.hc
  Used for current global and domestic rating table.

• Hyundai Capital Services 2026 GMTN Offering Circular, dated January 8, 2026, SGX filing.
  https://links.sgx.com/FileOpen/HYUNDAI%20CAPITAL%20SERVICES%2C%20INC._HCS%202026%20GMTN%20Update%20-%20Offering%20Circular%20%28dated%201.8.2026%29.ashx?App=Prospectus&FileID=68321
  Used only as a bondholder-structure and risk-factor reference where accessible. Local download was blocked by SGX access control, so individual bond terms were not fully reviewed.

Internal source handling

• Official PDFs and extracted text were saved in the issuer data folder for future refresh work.
• The structured source extract prepared for this report separates 1Q26 IR management data, 2025 audited K-IFRS consolidated data, rating table, funding data, liquidity data and unresolved items.

Unverified or pending items

• Individual HYUCAP bond offering circulars and pricing supplements were not fully reviewed. Guarantee status, negative pledge, cross default, change of control, tax gross-up, governing law and event-of-default language should be checked before making a bond-specific view.
• Live bond prices, OAS, Z-spreads, CDS, curve position and relative value versus HMC/Kia, Hyundai Card, Korean banks and other auto-finance peers were not available in this work.
• Moody's, S&P, Fitch and JCR latest full reports may contain additional standalone credit profile, support uplift and rating trigger details that were not fully accessible.
• PF and Mortgage book details, including project concentration, LTV, collateral, sponsors, geography and vintage, were not available from the public IR package.
• ABS pool details, secured funding terms, overcollateralization, retained interests and unencumbered asset availability for unsecured bondholders were not reviewed.
• Company IR management metrics and audited K-IFRS consolidated figures use different definitions and scopes in some areas. Detailed reconciliation was not performed.
• Country-by-country profitability and funding data for overseas entities were not fully extracted. The report therefore relies mainly on HCS consolidated data and company-level global presence disclosure.
• Exact public posting dates for the 1Q26 IR presentation and 2025 audited financial statements were not separately verified.