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Rating Action:

Moody's affirms Dah Sing Bank's A3 ratings; revises outlook to stable

19 Oct 2017

Hong Kong, October 19, 2017 -- Moody's Investors Service has today affirmed Dah Sing Bank, Limited's A3 long-term deposit rating and Prime-2 short-term deposit rating.

At the same time, Moody's has affirmed the bank's a3 baseline credit assessment (BCA) and adjusted BCA, and its A2(cr)/P-1(cr) counterparty risk assessments.

The outlook on Dah Sing Bank's ratings is revised to stable from negative. For a list of all affected ratings, please refer to the end of this press release.

RATINGS RATIONALE

The affirmation of Dah Sing Bank's ratings with a stable outlook reflects the bank's resilient performance in recent years, despite subdued economic growth in Hong Kong. The bank has maintained sound financial metrics with strong asset quality, adequate capitalization and a good liquidity profile.

The bank has a greater focus on small and medium-sized (SME) lending and has managed the asset quality on such exposures well. It has maintained impaired loan ratios consistently below or around 1.0% in recent years. Impaired loan ratio was 0.82% at end-June 2017, down 23bps compared to end-2016, mainly driven by a decrease in impaired loans among its SME borrowers. Moody's expects the bank's asset risks will likely stabilize on the back of strong economic growth momentum.

Dah Sing Bank's capital adequacy has improved since 2014, with reported Common Equity Tier 1 (CET1) ratio of 13.1% at end-June 2017, up from 12.7% at end-2016. We expect capitalization will be largely stable on the back of subdued loan growth and better retained earnings.

The bank maintains a sound liquidity profile. As with other Hong Kong banks, the bank is primarily funded by customer deposits, which accounted for 84.9% of total liabilities at end-June 2017.

The bank also has ample liquid assets that can be used to meet unexpected outflow of funds. The bank's liquid assets which mainly consist of cash, interbank placements, treasury bills and government securities amounted to 32.5% of total assets at end June-2017.

On the other hand, Dah Sing Bank's core profitability has been trending below the peer average partly because of its high operating expenses. The bank has weaker operating efficiency compared with other rated banks in Hong Kong. Its cost-to-income ratio was 51% in H1 2017, higher than the average of rated banks at mid-40%. The bank's earnings are highly reliant on associate income from Bank of Chongqing, which accounted for a high 25% of Dah Sing Bank's first half 2017 pre-tax profits.

We do not incorporate any systemic support in the bank's deposit rating, given its limited market share, leaving the long-term deposit rating at A3.

WHAT COULD CHANGE THE RATING UP

Given the bank's rating is high relative to other rated mid-sized banks in Hong Kong, the potential for an upgrade of its deposit rating and baseline credit assessment is limited.

WHAT COULD CHANGE THE RATING DOWN

Adverse developments in major advanced economies that would cause volatilities in the economic growth of Hong Kong and China, or a significant fall in the local property prices that weaken Dah Sing Bank's financial profile could trigger a downgrade of the bank's ratings. The bank's ratings could also be downgraded if strong asset growth weakens its capitalization, such that its CET1 ratio falls below 9.5%, or if impaired loans ratio exceeds 1.5% of gross loans.

A significant impairment on the bank's investment in Bank of Chongqing could also lead to a rating downgrade.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Dah Sing Bank, Limited is headquartered in Hong Kong and reported total assets of HKD210 billion at end-June 2017.

Outlook Actions:

..Issuer: Dah Sing Bank, Limited

....Outlook, Changed To Stable From Negative

Affirmations:

..Issuer: Dah Sing Bank, Limited

.... Baseline Credit Assessment, Affirmed a3

.... Adjusted Baseline Credit Assessment, Affirmed a3

.... Counterparty Risk Assessment, Affirmed A2(cr)/P-1(cr)

.... Long-term Deposit Rating, Affirmed A3, outlook is changed to Stable from Negative

.... Short-term Deposit Rating, Affirmed P-2

.... Senior Unsecured Medium-Term Note Program, Affirmed (P)A3

.... Subordinated Medium-Term Note Program, Affirmed (P)Baa2

.... Junior Subordinated Medium-Term Note Program, Affirmed (P)Baa2

.... Subordinate Regular Bond/Debenture, Affirmed Baa1

.... Subordinate Regular Bond/Debenture, Affirmed Baa2 (hyb)

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.

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.

Sherry Zhang
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
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

No Related Data.
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