Singapore, December 03, 2018 -- Moody's Investors Service has affirmed the ratings and assessments of
DBS Bank Ltd. (DBS Bank), DBS Group Holdings Ltd (DBSH),
Oversea-Chinese Banking Corp Ltd (OCBC), United Overseas
Bank Limited (UOB) and their branches.
At the same time, Moody's has upgraded the ratings assigned to the
subordinated Tier-2 point of non-viability (PONV) securities
of DBSH, OCBC and UOB to A2(hyb) from A3(hyb), and concluded
the review for upgrade on these ratings that was initiated on 16 November
2017.
A full list of the affected ratings is provided at the end of this press
release.
RATINGS RATIONALE
AFFIRMATION OF Aa1 RATINGS AND ASSESSMENTS
DBS Bank, OCBC and UOB maintain strong and stable financial metrics.
Their a1 baseline credit assessments (BCA) are some of the highest in
the world, underpinned by strong solvency and liquidity.
While 2019 will likely be a more challenging year for the Singapore and
broader Asian regional economy -- due to slower economic and trade
growth -- the three Singaporean lenders are well positioned to withstand
these headwinds.
Moody's expects that non-performing loans will remain low
at around 1.5% to 2.0% of gross loans for
the three banks in 2019. Credit reserves should also remain at
a good level of around 80%-90% for these banks,
including the regulatory reserve where applicable.
The core capital ratios of DBS, OCBC and UOB remain strong,
ranging from 14% to 17% on a tangible common equity to risk
weighted assets basis. Moody's expects that loan growth at
the three lenders will moderate to approximately 5% next year,
as domestic macroprudential measures and more challenging macroeconomic
conditions dampen loan demand.
As a result of slower growth in risk weighted assets, the banks'
capital ratios could increase in 2019 - unless they decide to pay
larger dividends.
Profitability has improved in 2018, as the banks' net interest
margins widened on higher interest rates, while credit provisions
decreased. These three banks -- DBS, OCBC and UOB --
also benefit from diversified earnings streams, with a high share
of recurring and granular wealth management income.
The banks' funding and liquidity remain robust, particularly
in Singapore where these banks command large market shares in low-cost
and sticky current and savings accounts. They also continue to
fund their significant US dollar loans with US dollar non-bank
deposits, with the related loans-to-deposits ratios
well below 100%.
The Aa1 deposit and senior unsecured ratings of DBS Bank, OCBC,
and UOB incorporate three notches of uplift from the banks' adjusted
BCAs, reflecting Moody's assumption of a very high probability of
government support for these banks in times of stress.
The Aa2 issuer ratings assigned to DBSH, the financial holding company
of DBS Group, is positioned one notch below the Aa1 deposit ratings
of DBS Bank to reflect structural subordination of DBSH's creditors
relative to DBS Bank creditors.
UPGRADE OF SUBORDINATED DEBT RATINGS
The upgrade of subordinated debt ratings to A2(hyb) from A3(hyb) is driven
by the Monetary Authority of Singapore's (MAS) operationalization
of its statutory bail-in powers under the enhanced bank resolution
regime for Singapore banks on 29 October 2018.
According to Moody's, the statutory bail-in powers
decrease the risk associated with the Singapore banks' Tier-2
contractual PONV securities, by removing the uncertainty associated
with timing of a principal write-down of Tier-2 PONVs.
As per the Banks methodology, Moody's previously rated the contractual
Tier-2 PONV securities of Singapore financial institutions at Adjusted
BCA minus two notches, with (1) one notch deducted due to higher
loss severity relative to senior debt, and (2) an additional notch
deducted to reflect the risk associated with the timing of principal write-downs
inherent in contractual securities in the absence of a statute.
Moody's now considers that that contractual PONV securities would
not be singled out and losses would be imposed only at the same time as
on new-style junior securities that would be loss absorbing by
statute. As a result, Moody's now rates outstanding contractual
PONV securities at the Adjusted BCA minus one notch.
RATING OUTLOOK
The outlook on the four Singapore financial institutions -- DBS Bank,
DBSH, OCBC and UOB -- remains stable.
WHAT COULD CHANGE THE RATINGS UP/DOWN
The Aa1 ratings of DBS Bank, OCBC and UOB are among the highest
assigned to any banks globally, and upward pressure on the ratings
is unlikely.
However, any improvement in macroeconomic conditions in Singapore
or the region, as well as in the banks' financial metrics,
would be positive for the banks' a1 BCAs.
The Aa1 ratings could be downgraded if the a1 BCAs are downgraded.
Negative pressure on BCAs could materialize if problem loans exceed 2%
of gross loans, capital deteriorates to much lower levels,
and/or liquidity tightens considerably.
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
LIST OF AFFECTED RATINGS
DBS GROUP HOLDINGS LTD
• Long-term local and foreign currency issuer rating affirmed
at Aa2; stable outlook
• Short-term local and foreign currency issuer rating affirmed
at P-1
• Foreign currency other short term program rating affirmed at (P)P-1
• Local and foreign currency senior unsecured debt rating affirmed
at Aa2; stable outlook
• Foreign currency senior unsecured medium-term note (MTN)
program rating affirmed at (P)Aa2
• Long-term local and foreign currency subordinate rating
upgraded to A2(hyb) from A3(hyb) review for upgrade
• Long-term foreign currency MTN program subordinate rating
upgraded to (P)A2 from (P)A3 review for upgrade
• Local and foreign currency preferred stock non-cumulative
rating affirmed at Baa1(hyb)
• Foreign currency preferred stock non-cumulative MTN program
rating affirmed at (P)Baa1
• Outlook is maintained at stable
DBS BANK LTD.
• Long-term local and foreign currency bank deposit ratings
affirmed at Aa1; stable outlook
• Short-term local and foreign currency bank deposit ratings
affirmed at P-1
• Short-term foreign currency commercial paper rating affirmed
at P-1
• Foreign currency other short term program rating affirmed at (P)P-1
• Foreign currency senior unsecured debt rating affirmed at Aa1;
stable outlook
• Foreign currency senior unsecured MTN program rating affirmed at
(P)Aa1
• Senior unsecured commercial paper rating affirmed at (P)Aa1
• Long-term foreign currency subordinate MTN program rating
upgraded to (P)A2 from (P)A3 review for upgrade
• Local currency preferred stock non-cumulative rating affirmed
at Baa1(hyb)
• Foreign currency preferred stock non-cumulative MTN program
rating affirmed at (P)Baa1
• BCA and adjusted BCA affirmed at a1
• Long-term and short-term Counterparty Risk Assessment
affirmed at Aa1(cr)/P-1(cr)
• Long-term and short-term local and foreign currency
Counterparty Risk Ratings affirmed at Aa1/P-1
• Outlook is maintained at stable
DBS BANK LTD., AUSTRALIA BRANCH
• Short-term foreign currency commercial paper rating affirmed
at P-1
• Foreign currency other short term program rating affirmed at (P)P-1
• Local currency senior unsecured debt ratings affirmed at Aa1;
stable outlook
• Foreign currency senior unsecured MTN program rating affirmed at
(P)Aa1
• Long-term foreign currency subordinate MTN program rating,
upgraded to (P)A2 from (P)A3 review for upgrade
• Foreign currency preferred stock non-cumulative MTN program
rating affirmed at (P)Baa1
• Outlook is maintained at stable
DBS BANK LTD., HONG KONG BRANCH
• Short-term foreign currency commercial paper rating affirmed
at P-1
• Foreign currency other short term program rating affirmed at (P)P-1
• Foreign currency senior unsecured debt ratings affirmed at Aa1;
stable outlook
• Foreign currency senior unsecured MTN program rating affirmed at
(P)Aa1
• Long-term and short-term Counterparty Risk Assessment
affirmed at Aa1(cr)/P-1(cr)
•Long-term and short-term local and foreign currency
Counterparty Risk Ratings affirmed at Aa1/P-1
• Outlook is maintained at stable
DBS BANK LTD., LONDON BRANCH
• Short-term foreign currency commercial paper rating affirmed
at P-1
• Foreign currency other short term program rating affirmed at (P)P-1
• Foreign currency senior unsecured MTN program rating affirmed at
(P)Aa1
• Long-term and short-term Counterparty Risk Assessment
affirmed at Aa1(cr)/P-1(cr)
• Long-term and short-term local and foreign currency
Counterparty Risk Ratings affirmed at Aa1/P-1
• Outlook is NOO
OVERSEA-CHINESE BANKING CORPORATION LIMITED
• Long-term local and foreign currency bank deposit ratings
affirmed at Aa1; stable outlook
• Short-term local and foreign currency bank deposit ratings
affirmed at P-1
• Short-term foreign currency commercial paper rating affirmed
at P-1
• Foreign currency other short term program rating affirmed at (P)P-1
• Foreign currency senior unsecured debt rating affirmed at Aa1;
stable outlook
• Foreign currency senior unsecured MTN program rating affirmed at
(P)Aa1
• Foreign currency Basel III-compliant subordinated debt rating
upgraded to A2(hyb) from A3(hyb) review for upgrade
• Foreign currency Basel III-compliant subordinated MTN program
rating upgraded to (P)A2 from (P)A3 review for upgrade
• Local currency preferred stock rating affirmed at Baa1(hyb)
• BCA and adjusted BCA affirmed at a1
• Long-term and short-term Counterparty Risk Assessment
affirmed at Aa1(cr)/P-1(cr)
• Long-term and short-term local and foreign currency
Counterparty Risk Ratings affirmed at Aa1/P-1
• Foreign currency preferred stock non-cumulative MTN program
rating affirmed at (P)Baa1
• Outlook is maintained at stable
OVERSEA-CHINESE BANKING CORPORATION LIMITED, SYDNEY BRANCH
• Foreign currency other short term program rating affirmed at (P)P-1
• Local currency senior unsecured debt rating affirmed at Aa1;
stable outlook
• Foreign currency senior unsecured MTN program rating affirmed at
(P)Aa1
• Long-term and short-term Counterparty Risk Assessment
affirmed at Aa1(cr)/P-1(cr)
• Long-term and short-term local and foreign currency
Counterparty Risk Ratings affirmed at Aa1/P-1
•Outlook is maintained at stable
UNITED OVERSEAS BANK LIMITED
• Long-term local and foreign currency bank deposit ratings
affirmed at Aa1; stable outlook
• Short-term local and foreign currency bank deposit ratings
affirmed at P-1
• Short-term foreign currency commercial paper rating affirmed
at P-1
• Local and foreign currency other short term program rating affirmed
at (P)P-1
• Foreign currency senior unsecured debt rating affirmed at Aa1;
stable outlook
• Local and foreign currency senior unsecured MTN program rating
affirmed at (P)Aa1
• Local and foreign currency Basel III-compliant subordinated
debt ratings upgraded to A2(hyb) from A3(hyb) review for upgrade
• Local and foreign currency Basel III-compliant subordinated
MTN program rating upgraded to (P)A2 from (P)A3 review for upgrade
• Local and foreign currency preferred stock rating affirmed at Baa1(hyb)
• Local and foreign currency preferred stock non-cumulative
MTN program rating affirmed at (P)Baa1
• BCA and adjusted BCA affirmed at a1
• Long-term and short-term Counterparty Risk Assessment
affirmed at Aa1(cr)/P-1(cr)
• Long-term and short-term local and foreign currency
Counterparty Risk Ratings affirmed at Aa1/P-1
• Outlook is maintained at stable
UNITED OVERSEAS BANK LIMITED, SYDNEY BRANCH
• Foreign currency other short term program rating affirmed at (P)P-1
• Local currency senior unsecured debt rating affirmed at Aa1;
stable outlook
• Foreign currency senior unsecured MTN program rating affirmed at
(P)Aa1
• Foreign currency preferred stock non-cumulative MTN program
rating affirmed at (P)Baa1
• Long-term and short-term Counterparty Risk Assessment
affirmed at Aa1(cr)/P-1(cr)
• Long-term and short-term local and foreign currency
Counterparty Risk Ratings affirmed at Aa1/P-1
• Foreign currency Basel III-compliant subordinated MTN program
rating upgraded to (P)A2 from (P)A3 review for upgrade
• Outlook is maintained at stable
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Eugene Tarzimanov
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
