Hong Kong, January 31, 2013 -- Moody's Investors Service has affirmed the A3 long-term deposit
ratings of China's Bank of Communications (BoCom), and Hong
Kong's Dah Sing Bank Limited and Public Bank (Hong Kong) Limited.
At the same time, Moody's has downgraded their short-term
deposit ratings to P-2 from P-1.
Moody's has also affirmed Dah Sing Bank's A3 senior,
Baa1 subordinated, and Baa2 (hyb) junior subordinated debt ratings,
as well as the (P)A3 senior, (P)Baa1 subordinated, and (P)Baa2
junior subordinated ratings on notes under Dah Sing Bank's Euro MTN program.
The ratings outlook for all three banks is stable.
A list of ratings following today's actions can be found near the
end of the press release.
Today's affirmation of these long-term deposit ratings reflects
Moody's view that these three banks continue to feature the credit
characteristics of firms rated A3, whereas the downgrade of their
short-term ratings reflects Moody's observations of the transition
risks of short-term ratings that A3 banks represent over time.
RATINGS RATIONALE
Key determinant for assigning a short-term rating is an issuer's
long-term risk of default
Moody's believes that, other things being broadly equal,
lower long-term ratings imply not only increased default risk for
long-term obligations but also increased default risk for short-term
obligations. This view is based on Moody's assessment of
current credit conditions and experience of multi-notch rating
transition across an array of issuers rated A3 or lower during the global
financial crisis.
Issuers with long-term ratings between A3 and Baa2 almost always
map to P-2 under Moody's standard mapping for long-term
ratings to short-term ratings. Deviations from this standard
are intended to be exceptional; for instance when the combination
A3/P-1 is meant to signal an unusually high expectation that the
issuer's long-term rating will migrate upwards.
In the case of BoCom, Dah Sing Bank, and Public Bank (HK),
Moody's believes that conditions that would warrant the banks retaining
P-1 ratings while their long-term ratings remain at the
A3 level are not present.
The affirmation of BoCom's long-term rating with a stable
outlook reflects Moody's assessment that the bank's performance,
especially in terms of asset quality and capital, will prove resilient
in the current challenging operating environment.
Moody's assumes that the systemic support for BoCom in times of
stress is very high because the Chinese government (rated Aa3/positive)
owns a 37.5% stake in the bank, and given its systemic
importance to the economy as the fifth-largest bank in the country
by assets, with a market share of 3.9% in deposits
at end-September 2012.
BoCom's standalone bank financial strength rating (BFSR) of D+
maps to ba1 baseline credit assessment (BCA) on Moody's long-term
scale. The ba1 BCA is conservatively positioned relative to its
financial metrics, given Moody's concerns over its unseasoned
risk and governance systems and credit portfolios. Moody's
would consider upgrading the BCA in 2013 if: (1) there are growing
signs of economic stabilization; and (2) BoCom can keep its financial
performances close to current levels.
At end-September, BoCom's Tier-1 ratio was 11.58%,
the highest among Moody's-rated Chinese banks, while
its NPL ratio was low at 0.87%. The bank's
profitability is healthy. It reported a return on average assets
of 1.22% for the first nine months of 2012.
On the other hand, BoCom's BCA could decline if there is evidence
that: (1) the recent vintages of loan originations will strain its
financial strength more than Moody's has assumed; (2) its financial
leverage increases significantly from current levels due to aggressive
business growth; or (3) there is a reversal in the trend of improvements
in risk management, controls and corporate governance.
Any indication that government support is anything other than extremely
high would be negative for its deposit and debt ratings, although
Moody's considers such a scenario as unlikely in the medium term.
The affirmation of Dah Sing Bank's long-term deposit rating
takes into account the bank's sound asset quality and adequate capitalization
and liquidity profile. These positive factors are partially offset
by its relatively small franchise, high borrower concentration,
exposures to small- and medium-sized enterprises (SMEs)
in Hong Kong, and profitability that is below the average for its
peers.
Dah Sing Bank has maintained good asset quality metrics since 2009,
with impaired loan ratios consistently below 1%. The bank
also maintains a satisfactory capital ratio, with its Tier 1 ratio
around 10% since 2009. On the other hand, low market
interest rates and intense competition have weighed on Dah Sing Bank's
core profitability, and will continue to pressure its profitability
in the near term.
Moody's does not incorporate any systemic support in Dah Sing Bank's
rating, given its limited market share of less than 2% for
system deposits. The bank's rating is unlikely to be upgraded
in the near term, as the rating is already high relative to its
size.
However, upward pressure could arise if the bank's profitability
improves, with the return on average risk-weighted assets
rising to 1.8% or above, or if its franchise and market
position strengthen substantially.
Dah Sing Bank's rating could be downgraded if (1) there is a decline
in its capital position due to strong asset growth, such that its
Tier 1 ratio falls below 9.5%; or (2) its asset quality
deteriorates to the extent that its impaired loan ratio exceeds 1.5%.
The affirmation of Public Bank (HK)'s rating reflects the bank's
strong capitalization, good asset quality metrics, and strong
support from its parent Public Bank Berhad (foreign currency deposit ratings:
A3/P-2/stable; BFSR/BCA: C/a3/stable).
It also takes into account the bank's modest franchise, its
weaker-than-peer liquidity profile, and its high proportion
of potentially risky unsecured consumer-related lending and taxi
financing.
Public Bank (HK) is one of the smallest banks in Hong Kong. Its
unsecured consumer lending and taxi financing businesses account for more
than a quarter of its total loan portfolio, and make it more vulnerable
to adverse economic developments in Hong Kong, where its business
is based. Still, both businesses also have high returns.
Moody's expects the bank's strong Tier 1 capitalization of
19.1% at end-1H 2012 to provide it with an ample
buffer to absorb potential losses in the event of stress.
Moody's assesses the probability of parental support from Public
Bank Berhad as very high. Due to Public Bank (HK)'s small market
position with less than 1% share in deposits, Moody's
does not incorporate any systemic support in its ratings.
The bank is unlikely to be upgraded unless it can materially increase
its market position and improve its franchise without sacrificing its
asset quality and increasing its risk appetite. On the other hand,
the bank's ratings could be downgraded if there is material deterioration
in asset quality, with impaired loans rising to 4% of gross
loans.
A weakening in capitalization -- due to aggressive balance
sheet expansion, or a large dividend payout, such that its
Tier 1 capital adequacy ratio falls below 13% --
could also lead to a downgrade. Any reduction in parental support
for Public Bank (HK) would also negatively affect its deposit rating.
The principal methodology used in these ratings was Moody's Consolidated
Global Bank Rating Methodology published in June 2012. Please see
the Credit Policy page on www.moodys.com for a copy of this
methodology.
Other Factors used in this rating are described in Moody's Global
Short-Term Ratings published in October 2012.
Taking into account today's announcement, the ratings of the
affected banks are as follow:
Bank of Communications:
- BFSR/BCA: D+/ba1
- Local currency and foreign currency long-term bank deposits:
A3
- Local currency and foreign currency short-term bank deposits:
P-2
Dah Sing Bank Limited:
- BFSR/BCA: C/a3
- Local currency and foreign currency long-term bank deposits:
A3
- Local currency and foreign currency short-term bank deposits:
P-2
- Foreign currency senior unsecured debt: A3
- Foreign currency senior unsecured MTN: (P)A3
- Foreign currency subordinated debt: Baa1
- Foreign currency subordinated MTN: (P)Baa1
- Foreign currency junior subordinated debt: Baa2 (hyb)
- Foreign currency junior subordinated MTN: (P)Baa2
Dah Sing MTN Financing Limited:
-BACKED local currency senior unsecured MTN: (P)A3
-BACKED local currency subordinated MTN: (P)Baa1
-BACKED local currency junior subordinated MTN: (P)Baa2
Dah Sing SAR Financing Limited:
-BACKED local currency subordinated MTN: (P)Baa1
-BACKED local currency junior subordinated MTN: (P)Baa2
Public Bank (Hong Kong) Limited:
- BFSR/BCA: C-/baa2
- Local currency and foreign currency long-term bank deposits:
A3
- Local currency and foreign currency short-term bank deposits:
P-2
Bank of Communications is headquartered in Shanghai. As of 30 September
2012, its assets totaled RMB4.36 trillion ($694.6
billion).
Dah Sing Bank and Public Bank (Hong Kong) are headquartered in Hong Kong.
As of 30 June, 2012, Dah Sing's assets totaled HKD 149
billion ($19.2 billion), while those of Public Bank
(HK) stood at HKD 36 billion ($4.6 billion)
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.
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 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.
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.
Bin Hu
Vice President - Senior 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
SUBSCRIBERS: (852) 3551-3077
Sonny Hsu
VP - Senior Analyst
Financial Institutions Group
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 Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's affirms the A3 ratings of three China, Hong Kong banks; downgrades their short-term ratings to P-2 from P-1