NOTE: On May 21, 2013, the press release was revised as follows: The first sentence of the second paragraph was amended and now reads as follows:
BOC (HK)'s bank financial strength rating (BFSR) was affirmed at C+, which maps to baseline credit assessment (BCA) of a2.
The fourth paragraph was amended and now reads as follows:
Chiyu's BFSR was affirmed at C, which maps to BCA of a3, and the outlook on all its ratings remains stable. Revised release follows.
Hong Kong, May 07, 2013 -- Moody's Investors Service, ("Moody's") has
today affirmed at Aa3 the long-term foreign and local currency
deposit ratings of Bank of China (Hong Kong) Limited (BOC (HK)),
Nanyang Commercial Bank Limited (Nanyang), and Chiyu Banking Corporation
Limited (Chiyu). The banks' short-term deposit ratings
are also affirmed at P-1.
BOC (HK)'s bank financial strength rating (BFSR) was affirmed at C+, which maps to baseline credit assessment (BCA) of a2. Meanwhile, its foreign
currency senior unsecured debt rating is affirmed at Aa3, foreign
currency subordinated debt rating at A1, foreign currency senior
unsecured MTN obligation rating at (P)Aa3, and foreign currency
subordinated MTN obligation rating at (P)A1. The outlook on all
of BOC (HK)'s long-term ratings remains stable.
Nanyang's BFSR/BCA have been adjusted down by one notch to C/a3
from C+/a2. The outlook on both Nanyang's deposit ratings
and BFSR has been revised to negative from stable. The downward
adjustment on Nanyang's BCA and the negative outlook reflect the
bank's increasing exposures to riskier mainland borrowers.
Chiyu's BFSR was affirmed at C, which maps to BCA of a3, and the outlook on all its ratings remains stable.
RATINGS RATIONALE
Long-term ratings
The affirmation of BOC (HK)'s Aa3 long-term deposit ratings
with stable outlook reflects its strong financial standing with solid
capitalization, good asset quality, strong liquidity profile,
and good profitability. The deposit ratings factor in very high
likelihood of parental support from Bank of China Ltd (deposits A1 stable,
BFSR D/BCA ba2 stable) and high likelihood of systemic support from the
Hong Kong government (Aa1 stable). BOC (HK) is of strategic importance
to its parent as it is the parent's flagship overseas operation.
BOC (HK) has close business relationship with domestic and overseas branches
of Bank of China Ltd. BOC (HK) is also a systemically important
bank in Hong Kong with 13% market share of local loans.
Nanyang and Chiyu's deposit ratings are aligned with those of their
parent BOC (HK). Moody's expects BOC (HK) to provide timely
support to its two bank subsidiaries in the event of need..
Standalone credit profile of BOC (HK)
BOC (HK) has a well-established franchise and branch network in
Hong Kong. It is the second largest bank and one of three note-issuing
banks in the territory. The bank's strong market position
and deposit franchise lead to low funding costs and strong profitability.
Increasing economic integration between Hong Kong and mainland China and
growing cross-border trade and investments should create more opportunities
for BOC (HK). Nevertheless, increasing mainland exposures
also entail potential risks given imbalances in China's investment-driven
and relatively less mature economy.
BOC (HK) has maintained strong asset quality metrics since 2009 with impaired
loans consistently below 0.4% of gross loans. Its
capital adequacy has remained strong over time, with its tier-1
ratio consistently above 11%. The bank also has a very strong
liquidity profile due to its strong franchise with a large branch network.
Despite prevailing low interest rates, profitability has remained
strong thanks to low funding costs, good operating efficiency,
and low credit costs.
BOC (HK)'s BCA is several notches higher than that of its parent,
Bank of China whose BFSR/BCA are D/ba2. Moody's incorporates
seven notches of systemic support from the Chinese government in the A1
long-term deposit rating of Bank of China. Moody's
judges that stand-alone credit issues at Bank of China would likely
be dealt with through decisive support from the Chinese government,
with the result that there would be limited negative impact on the franchise
or financial profile of BOC (HK). Moreover, Moody's
assumption is that systemic support from the Chinese government for Bank
of China would be allowed to flow through to BOC (HK) given that financial
stability in Hong Kong would likely be a concern for the mainland government.
Standalone credit profile of Nanyang
Nanyang's BCA of a3 reflects its sound financial profile,
including its strong capital adequacy, good asset quality,
and good operating efficiency. These positives are offset by its
relatively small franchise in Hong Kong and risks associated with its
ongoing expansion in mainland China.
The bank's mainland exposures have increased strongly since 2009
when its parent injected its mainland branches and assets into the bank.
Loans for mainland customers accounted for around 45% total loans
at end-2012. Although the bank started out serving Hong
Kong customers operating on the mainland, it increasingly serves
more local domestic mainland customers through its mainland operation.
The negative outlook on the bank's BFSR reflects the likelihood
of further weakening in the bank's risk profile stemming from future
increases in mainland exposures.
Nanyang has maintained good asset quality metrics in recent years,
with impaired loan ratios consistently below 0.4% since
2009. Nevertheless, the impaired loans ratio rose to 0.37%
from 0.14% during 2012 largely due to weakened financial
standing of a mainland solar panel producer. Further increases
in the bank's mainland exposure will render the bank more susceptible
to adverse developments in mainland China. Strong loan growth may
also weaken the bank's current solid capitalization. Its
tier-1 ratio at end-2012 was 15.1%.
Nanyang has historically maintained a sound liquidity profile, with
its funding consisting largely of stable customer deposits. The
bank's mainland operation has a weaker funding profile due to its
less developed retail franchise, although the bank benefits from
its affiliation with BOC which helps drive deposit growth. The
bank's three-year average return on average risk-weighted
assets was 1.6%, slightly lower than the average of
its Hong Kong peers. Moody's expects the bank to report slightly
improved profitability in 2013.
Standalone credit profile of Chiyu
Chiyu's BCA of a3 reflects its strong capitalization and profitability,
very good asset quality, and sound liquidity profile. Nevertheless,
the bank's small size and limited franchise weigh on its ratings.
Although loans for mainland customers accounted for 17% of overall
exposures, which raises our concerns on the bank's future
asset quality, a 17% decline in such exposures between 2010
and 2012 eased such concerns. The bank retains a cautious approach
in its mainland expansion.
The bank maintained very solid tier-1 ratio of 19.7%
and total capital adequacy ratio of 20.4% at end-2012.
Moody's expects the bank to maintain its strong capital position
given its robust internal capital generation capability and expected modest
growth. The bank also maintains a sound liquidity profile with
a low loan-to-deposit ratio of 58% and a good funding
profile that is centered on retail deposits.
Moody's expects Chiyu to maintain its strong level of profitability.
High margins from its small-and medium-sized enterprise
business, low operating expenses, and low credit costs all
underpin the bank's sustained good profitability. The bank
leverages resources, product development and IT support from its
parent. Its three-year average return on risk-weighted
asset was 3.1% between 2010 and 2012, well above the
1.8% average for its rated peers.
What Could Change the Rating - Up / Down
BOC (HK)
BOC (HK)'s deposit rating is high relative to global peers and is
unlikely to be upgraded in the near term. Its baseline credit assessment
could be adjusted higher if the bank maintains strong capitalization with
Tier-1 CAR of 11% or above, expands its mainland-related
business prudently, and increases contribution from low risk and
stable sources of income.
BOC (HK)'s deposit rating and baseline credit assessment could be
adjusted down if signs of material deterioration in asset quality emerge
with impaired loans / gross loans ratio rising by 1% point or more,
or if strong credit growth outstrips internal capital generation,
leading to a decline of the Tier-1 ratio to below 10%.
Nanyang
Nanyang's deposit rating incorporates parental support from BOC
(HK), whose deposit rating in turn incorporates support from Bank
of China and the Hong Kong government. The bank's deposit
rating is very high and is unlikely to be upgraded further. The
bank's standalone credit assessment is also high relative to its size,
and is unlikely to be raised.
Nanyang's deposit ratings could be downgraded if the likelihood
of parental support diminishes. The standalone assessment could
be adjusted lower if the bank cannot maintain its asset quality and capital
adequacy amid ongoing expansion, notably in mainland China.
Further expansion in its mainland exposures will render the bank more
vulnerable to adverse economic developments in China and may trigger a
downward adjustment in its standalone assessment and deposit rating.
Chiyu
Chiyu's deposit rating incorporates parental support from BOC (HK),
whose deposit rating in turn incorporates support from Bank of China and
the Hong Kong government. The deposit rating is very high and is
unlikely to be upgraded further.
The bank's a3 BCA is high considering its limited franchise,
and is unlikely to be raised.
Chiyu's deposit rating and BCA could be adjusted downward if the
bank engages in rapid expansion at the expense of asset quality and capital
adequacy. An important assumption underlying the current rating
and BCA is the bank's ability to maintain a very strong financial profile,
which offsets the credit weakness that stems from its small size and modest
franchise.
Therefore, any deterioration in its strong financial fundamentals
would lead to a downward adjustment on its BCA. A reduction in
the Tier- 1 ratio to below 14% and/or an increase in impaired
loans above 1.5% of total loans could lead to such an adjustment.
All three banks are headquartered in Hong Kong and reported total assets
as follows:
BOC (HK): HKD1,769 billion (USD228 billion) as of 31 Dec 2012
Nanyang: HKD252 billion (USD32 billion) as of 31 Dec 2012
Chiyu: HKD48 billion (USD6.2 billion) as of 31 Dec 2012
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.
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.
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.
Sonny Hsu
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
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 Aa3 deposit ratings of BOC (HK), Nanyang and Chiyu
