Hong Kong, July 19, 2019 -- Moody's Investors Service has affirmed DBS Bank (Hong Kong) Limited's
deposit ratings at A1/P-1.
At the same time, Moody's has affirmed the bank's Baseline
Credit Assessment (BCA) at a3, adjusted BCA at a1, Counterparty
Risk Assessments (CR Assessments) at Aa1(cr)/P-1(cr), and
Counterparty Risk Ratings (CRRs) at Aa2/P-1.
The outlook on the bank's long-term deposit ratings remains stable.
A full list of the affected ratings and assessments is provided at the
end of this press release.
RATINGS RATIONALE
— BCA and adjusted BCA
The affirmation of DBS Bank (Hong Kong)'s BCA at a3 is underpinned
by the bank's (1) improving asset-quality metrics and profitability,
(2) solid capitalization, and (3) sound liquidity with little reliance
on wholesale funding. The BCA also takes into account the inherent
risk of bank's loan exposure to SME borrowers.
The bank's asset quality metrics have been improving steadily over
the past two years, although remain weaker than the system average.
Its impaired loan ratio declined to 1.52% at the end of
2018 from 1.86% at the end of 2017 and 2.82%
at the end of 2016. The higher ratio at the end of 2016 was largely
driven by the bank's recognition of its exposure to the RMB derivative
positions of its SME customers as impaired.
The bank's profitability has improved over the past two years,
with its return on average assets up to 1.21% in 2018 from
1.07% in 2017 and 0.58% in 2016. The
improvement was mainly driven by the bank's strong top-line
revenue growth, reduced impairment charges, and a one-off
gain from the disposal of property in 2018. Although credit costs
slightly increased in 2018 and will likely increase further in 2019,
amid a more challenging operating environment, the overall level
of profitability should remain broadly stable.
DBS Bank (Hong Kong) maintains solid capitalization, with a Common
Equity Tier 1 ratio of 15.1% as of the end of 2018.
The ratio declined slightly from 16.1% a year ago because
of high dividend payouts. Moody's expects the bank will maintain
a healthy level of capitalization in view of its satisfactory internal
capital generation ability and moderate risk-weighted asset growth
will help support the bank's high dividend payouts.
DBS Bank (Hong Kong)'s liquidity profile is strong with little reliance
on wholesale funding. The bank is primarily funded by customer
deposits and maintains a relatively high proportion of current and savings
account deposits than its peers. The bank also holds a large amount
of liquid assets on its balance sheet.
DBS Bank (Hong Kong)'s adjusted BCA incorporates two notches of
uplift for affiliate support, taking into account a very high level
of expected support from its parent bank, DBS Bank Ltd. (deposits:
Aa1 stable, BCA: a1). DBS Bank (Hong Kong) is of strategic
importance to DBS Group Holdings Ltd (Aa2 stable) and DBS Bank.
DBS Bank (Hong Kong) is wholly-owned by DBS Bank and plays an important
role in the group's greater China strategy by collaborating with
affiliates in the region, as well as with the parent bank,
to provide cross-border services to customers. Moody's
expects that parental capital and liquidity support is highly likely in
the event of need.
— Deposit ratings
DBS Bank (Hong Kong) is subject to Hong Kong's Financial Institutions
(Resolution) Ordinance and Moody's considers Hong Kong an operational
resolution regime.
The bank's deposit ratings are positioned at A1, in line with its
adjusted BCA under Moody's Advanced Loss Given Failure (LGF) analysis,
reflecting Moody's view of a moderate loss-given-failure
for depositors, given the subordination of the bank's junior deposits,
senior unsecured debts, and loss-absorbing capital instruments.
The deposit ratings also take into consideration the bank's small
deposit market share in Hong Kong and therefore Moody's assumption of
a low probability of support from the Government of Hong Kong (Aa2 stable),
resulting in no rating uplift.
— CR Assessments and CRRs
The bank's CR Assessments are positioned at Aa1(cr), three notches
above its adjusted BCA under Moody's Advanced LGF analysis, reflecting
the bank's substantial cushion against default provided to obligations
represented by CR Assessments, given the subordination of the bank's
junior deposits, senior unsecured debts, and loss-absorbing
capital instruments.
The bank's CRRs are positioned at Aa2, two notches above its
adjusted BCA under Moody's Advanced LGF analysis, reflecting
Moody's view of a very low loss-given-failure,
given the subordination of the bank's junior deposits, senior
unsecured debts, and loss-absorbing capital instruments.
The CR Assessments and CRRs also do not factor in government support uplift.
WHAT COULD CHANGE THE RATINGS UP
DBS Bank (Hong Kong)'s BCA could be upgraded if it consistently
maintains strong capitalization while asset quality and profitability
further improve.
DBS Bank (Hong Kong)'s adjusted BCA and deposit ratings are at the
same level as the parent bank's BCA. Therefore, an
upgrade in adjusted BCA would require an upward movement in the parent
bank's BCA.
DBS Bank (Hong Kong)'s deposit ratings could also be upgraded if
the subordination of junior liabilities leads to lower loss-given-failure.
WHAT COULD CHANGE THE RATINGS DOWN
DBS Bank (Hong Kong)'s BCA, adjusted BCA and deposit ratings could
be downgraded if (1) there is a deterioration in the bank's operating
environment; (2) capitalization weakens, with its TCE to RWA
ratio falling below 13.5%; or (3) impaired loans rise
above 3.5% of total loans.
DBS Bank (Hong Kong)'s deposit ratings could also be downgraded if (1)
parental support weakens or the parent's BCA is adjusted downward;
or (2) the subordinated instrument decreases relative to its tangible
banking assets, leading to higher severity of loss.
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.
Headquartered in Hong Kong, DBS Bank (Hong Kong) Limited reported
total assets of HKD445 billion at 31 December 2018.
LIST OF AFFECTED RATINGS AND ASSESSMENTS
- BCA affirmed at a3
- Adjusted BCA affirmed at a1
- Long-term foreign currency and local currency bank deposit
ratings affirmed at A1; stable outlook
- Short-term foreign currency and local currency bank deposit
ratings affirmed at P-1
- Long-term foreign currency and local currency counterparty
risk ratings affirmed at Aa2
- Short-term foreign currency and local currency counterparty
risk ratings affirmed at P-1
- Long-term counterparty risk assessment affirmed at Aa1(cr)
- Short-term counterparty risk assessment affirmed at P-1(cr)
- Outlook 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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
its ratings process. Please refer to www.moodys.com
for the Regulatory Disclosures for each credit rating action under the
ratings tab on the issuer/entity page and for details of Moody's
Policy for Designating Non-Participating Rated Entities.
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.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Winnie Tang
Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Minyan Liu, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
