Hong Kong, January 08, 2016 -- Moody's Investors Service says that the ratings of Nanyang Commercial
Bank, Ltd. (deposit ratings A1, baseline credit assessment
baa1) remain under review for downgrade pending the completion of the
acquisition of the bank with China Cinda Asset Management Co.,
Ltd. (Cinda, issuer rating A3 stable, baseline credit
assessment ba2).
Moody's review was initiated on 28 August 2015, following
the announcement by Cinda on 27 August 2015 that Cinda Financial Holdings
Co., Ltd (unrated) — an entity 100% owned by
Cinda — was the sole bidder for the sale of Nanyang Commercial Bank.
RATINGS RATIONALE
Cinda Financial entered into a legally binding sale and purchase agreement
on 18 December 2015 to acquire all the issued shares of Nanyang Commercial
Bank.
According to the amendment to the agreement, the transaction will
complete only if the following conditions occur:
1) The Hong Kong Monetary Authority grants approval;
2) The China Banking Regulatory Commission approves the deal and Cinda
Financial completes the foreign exchange registration with the State Administration
of Foreign Exchange; and
3) Shareholders' of Cinda and BOC Hong Kong (Holdings) Limited (unrated)
provide their approvals on the deal.
Moody's expects to conclude its review of Nanyang's ratings,
once regulatory approvals have been obtained, because such approvals
represent the biggest hurdle to the successful completion of the transaction.
The bank's baseline credit assessment (BCA) of baa1 remains on review
for downgrade because the proposed change in ownership could lead to downward
pressure on the bank's standalone credit profile and we expect its
BCA could be lowered by one to two notches.
Moody's expects the bank will grow more aggressively its onshore
Mainland lending, which will lead to a riskier loan book and reduce
capital ratios . The bank used to have good cost efficiency but
post acquisition the cost to income ratio will likely to increase due
to higher expenses for network expansion as well as investment in IT and
human resources.
Nanyang Commercial Bank's current deposit ratings of A1 incorporate
three notches of support from its sole owner — Bank of China (Hong
Kong) Limited (deposit ratings Aa3 stable, BCA a2), Hong Kong's
second-largest bank by assets— and the Hong Kong government
(Aa1 stable). Moody's assessment of support for Nanyang Commercial
Bank in times of need provides an uplift to its A1 deposit ratings from
its BCA of baa1.
The change in ownership will likely lead to Moody's incorporating
less support in Nanyang Commercial Bank's ratings, given Cinda's
lower issuer rating when compared to the Bank of China (Hong Kong).
Moody's expects that Nanyang Commercial Bank's long-term
deposit ratings will likely be lowered to A3 if the transaction completes
successfully.
Even if the transaction is terminated, Nanyang Commercial Bank's
deposit ratings will likely be lowered given that its parent, Bank
of China (Hong Kong) aims to sell this subsidiary, reducing the
probability that it will provide support. .
What Could Change the Rating -- Up
Nanyang Commercial Bank's deposit ratings are unlikely to be upgraded
or confirmed if the transaction goes ahead.
Nevertheless, the bank's BCA and deposit ratings could be
confirmed only in the circumstances that the transaction is terminated
and Bank of China (Hong Kong) decides that Nanyang is no longer up for
sale.
What Could Change the Rating -- Down
The bank's deposit ratings would likely be downgraded, if Cinda
acquires control of the bank, given Moody's expectation of lower
expected support for Nanyang Commercial Bank.
The BCA could be negatively affected by plans to rapidly change the bank's
business model and by aggressively growing its onshore Mainland lending,
which could put pressure on Nanyang Commercial Bank's capital ratios over
time.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Nanyang Commercial Bank, Ltd. is headquartered in Hong Kong
and reported total assets of HKD318 billion at end-June 2015.
REGULATORY DISCLOSURES
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.
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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.)
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Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
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Releasing Office:
Moody's Investors Service Hong Kong Ltd.
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Moody's continues review for downgrade of Nanyang Commercial Bank's ratings