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PLEASE READ AND SCROLL DOWN!

 

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Related Issuers
Rating Action:

Moody's affirms Bank of Singapore's Aa1 ratings; raises BFSR/BCA to C/a3

28 Aug 2014

Singapore, August 28, 2014 -- Moody's Investors Service has today affirmed Bank of Singapore Limited's (BOS) Aa1 long-term issuer and deposit ratings with a stable outlook.

Concurrently, Moody's has raised BOS' bank financial strength rating (BFSR) to C from C-, with a stable outlook, which is equivalent to a baseline credit assessment (BCA) of a3 (previously baa1).

Moody's has also maintained the bank's aa3 adjusted BCA, which includes support uplift from its parent bank, Oversea-Chinese Banking Corp Ltd (OCBC, deposits Aa1 stable, BFSR B stable, BCA aa3).

The full list of ratings is presented at the end of this press-release.

RATINGS RATIONALE

STRENGTHENED STANDALONE CREDIT PROFILE

Moody's has raised BOS' BCA to a3 from baa1 because the bank has demonstrated: (1) an improved private banking franchise, as demonstrated by strong assets under management (AUM) growth from 2012 to 2014, (2) strong and sustainable asset quality and capital levels, including the maintenance of a 16% Common Equity Tier 1 (CET1) ratio under transitional Basel III rules, and (3) improved profitability levels with pre-provision income above 1.45% of risk-weighted assets (RWA) and net income above 1.05% of RWA.

BOS' franchise has improved, owing to investments in its distribution force, branding, and back-end systems, since the bank was acquired by OCBC in January 2010.

AUM growth was strong at a 20% compounded annual growth rate between end-2010 and end-2013, followed by 14% year-on-year growth in June 2014. It has a regionally diversified customer base, with US$51.2 billion of AUM as of June 2014.

BOS' asset quality is stronger than its peers, with a gross NPL ratio below 0.05% for the last three years. Moreover, its top 20 AUM and loan book concentrations are low, at 10% and 11% respectively. Its loans are typically Lombard loans which are originated in case its AUM clients need additional funds. These loans are fully secured by client assets or AUMs, and this type of collateral is liquid and well diversified among different products.

BOS' profitability and efficiency levels are strong, with pre-provision income as a share of average RWAs at around 1.9%, and cost-to-income ratios at around 70% for the first six months of 2014.

The bank's profitability and efficiency ratios, while stronger than that for most of the Swiss private banks rated by Moody's, could be subject to some volatility because BOS has a higher share of performance-driven income when compared to European private banks.

Furthermore, BOS remains well capitalized, with a CET1 ratio of 16% as of June 2014 under transitional Basel III rules. We expect it to maintain its Tier 1 ratio around 16% in the next 12-18 months, as the bank has indicated that it will not pay any dividend to OCBC and that RWA growth would be moderate.

High loan growth from AUM clients, due to the improved investment climate, drove the customer loans-to-deposit ratio to 90% at June 2014 from 66% six months earlier. However, BOS' liquidity remains sound with 80% of assets funded by customer deposits and around 20% of its assets in credit lines to OCBC as part of its centralized treasury.

AFFIRMATION OF Aa1 LONG-TERM RATINGS WITH STABLE OUTLOOK

The affirmation of BOS' Aa1 long-term ratings with a stable outlook reflects (1) the bank's BCA of a3; and (2) Moody's assessment of full parental support from OCBC, its parent bank that owns a 100% stake. As a result, BOS' long-term ratings remain in line with OCBC's long-term ratings and benefit from five notches of ratings uplift from its a3 BCA, which is a combination of parental and systemic support.

The affirmation of BOS' Aa1 ratings, which are aligned with those of OCBC, takes into consideration BOS' strategic importance for OCBC. BOS plays a key role in OCBC's focused wealth management strategy aiming at capturing rising private wealth in Asia. Similar to OCBC's regional focus, more than 50% of BOS' AUM are derived from four key markets: Singapore, Malaysia, Indonesia and Greater China.

Although there is no explicit guarantee from OCBC to support BOS, there are strong linkages between both institutions through OCBC's full ownership of BOS, the high representation of OCBC management in BOS' board, and the branding of BOS as an OCBC subsidiary.

WHAT COULD CHANGE THE RATINGS UP/DOWN

BOS' long-term ratings are among the highest globally and adequately reflect the cyclical risks inherent to the banking business, even for the strongest banks. They are therefore unlikely to be upgraded similarly to the ratings of its parent.

Upward pressure on BOS' standalone ratings could emerge if: (1) the bank's income statement structure improves with a larger fixed-income component; (2) the bank's private banking franchise continues to grow in Asia, increasing its AUM market share; (3) its CET1 ratio is maintained at 16%; and (4) its asset quality remains best-in-class without any new NPL formation.

A downgrade of OCBC's deposit ratings would lower BOS' deposit ratings. OCBC's failure to execute the Wing Hang Bank acquisition smoothly could also result in negative pressure on the ratings.

Downward pressure on BOS' standalone ratings could emerge if: (1) its CET1 ratio falls below 13%; (2) its proportion of liquid assets to total assets decline significantly; and/or (3) the bank's current low risk business model changes materially.

LIST OF AFFECTED RATINGS

Bank of Singapore Limited

- BFSR raised to C from C- with a stable outlook, equivalent to a change in BCA to a3 from baa1

- Long term issuer ratings of Aa1 are affirmed with stable outlook

- Long term bank deposit ratings of Aa1 are affirmed with stable outlook

The principal methodology used in this rating was Global Banks published in July 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Bank of Singapore Limited, headquartered in Singapore, had assets of US$16.2 billion and AUM of US$51.2 billion as of 30 June 2014.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077

Moody's affirms Bank of Singapore's Aa1 ratings; raises BFSR/BCA to C/a3
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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