Hong Kong, December 16, 2016 -- Moody's Investors Service has taken the following rating actions
on two Hong Kong subsidiaries of Singapore banks:
- Downgraded DBS Bank (Hong Kong) Limited's Baseline Credit
Assessment (BCA) to a3 from a2, its adjusted BCA to a1 from aa3,
its long-term deposit ratings to A1 from Aa3, and its Counterparty
Risk Assessment to Aa3(cr) from Aa2(cr).
- Affirmed OCBC Wing Hang Bank Limited's BCA of a3,
and downgraded its adjusted BCA to a1 from aa3, its long-term
deposit ratings to A1 from Aa3, its junior subordinated debt to
A3(hyb) from A2(hyb), and its Counterparty Risk Assessment to Aa3(cr)
from Aa2(cr).
The outlook on the two banks' ratings has been revised to stable from
negative.
The rating actions follow Moody's rating actions on 14 December
2016 on DBS Bank (Hong Kong) and OCBC Wing Hang Bank's parents --
DBS Bank Ltd. (Aa1 stable, a1) and Oversea-Chinese
Banking Corp Ltd (Aa1 stable, a1). Please refer to the press
release on the large Singaporean banks: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_359136
Outlooks, which provide an opinion on likely rating directions over
the medium term, are assigned only to a bank's long-term
deposit, issuer and senior unsecured debt ratings.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
The downgrade of these two banks' deposit ratings takes into account
the very strong support from their respective parents and the parents'
reduced capacity to provide support as reflected by the downgrade of their
BCAs to a1 from aa3. Following the rating actions, Moody's
incorporates two notches of parental support into the A1 deposit ratings
of DBS Bank (Hong Kong) and OCBC Wing Hang Bank to bring them in line
with the BCAs of their respective parent banks.
Moody's considers DBS Bank (Hong Kong) and OCBC Wing Hang Bank as
strategically important subsidiaries of their respective parents as both
banking groups expand their presence in Greater China and strive to serve
increasing cross-border business between China and Southeast Asia.
The stable outlook on the two banks' ratings reflects the stable
outlook on their respective parents' ratings.
The downgrade of DBS Bank (Hong Kong)'s BCA to a3 from a2 takes
into account the pressure on the bank's asset quality, as
reflected in its rising impaired loan ratio since 2015. The bank
reported impaired loan ratio of 2.75% at end-June
2016, higher than the average of its Hong Kong peers. The
bank's classification of its exposures to certain customers'
RMB derivative positions as impaired contributed to the increase in the
impaired loan ratio. The bank's profitability will also come
under pressure, owing to shrinking loan balances and high credit
costs. Credit charges rose to 0.91% of gross loans
annualized in first half 2016 from 0.34% in 2015 due to
the bank's deteriorating asset quality.
WHAT COULD CHANGE THE RATING UP
DBS Bank (Hong Kong) and OCBC Wing Hang's deposit ratings are at
the same level as their parents' BCAs and, as such,
an upgrade would require an upward movement of the parents' BCAs.
The banks' standalone credit assessment may be raised if their asset
quality and profitability improve while they maintain sound capitalization,
despite weak economic growth in Hong Kong.
WHAT COULD CHANGE THE RATING DOWN
DBS Bank (Hong Kong) and OCBC Wing Hang Bank's deposit ratings could be
downgraded if there is a weakening in parental support, or if the
parent's standalone credit assessment is adjusted downward.
The banks' BCAs could experience downward pressure if (1) their
Mainland exposures increase materially, or economic growth in Hong
Kong and China slows down sharply; (2) there is a significant deterioration
in the banks' asset quality metrics; or (3) their loan and
asset growth outpace capital generation, leading to a substantial
decline in their TCE/RWA ratios.
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
DBS Bank (Hong Kong) Limited is based in Hong Kong, and reported
total assets of HKD324 billion at end-June 2016.
OCBC Wing Hang Bank Limited is based in Hong Kong, and reported
total assets of HKD217 billion at end-June 2016.
LIST OF AFFECTED RATINGS
Issuer: DBS Bank (Hong Kong) Limited
BCA downgraded to a3 from a2
Adjusted BCA downgraded to a1 from aa3
Long term CR Assessment downgraded to Aa3(cr) from Aa2(cr)
Short term CR Assessment affirmed at P-1(cr)
Long term Deposit Rating downgraded to A1 from Aa3, outlook revised
to stable from negative
Short term Deposit Rating affirmed at P-1
Ratings outlook for the bank revised to stable from negative
Issuer: OCBC Wing Hang Bank Limited
BCA affirmed at a3
Adjusted BCA downgraded to a1 from aa3
Long term CR Assessment downgraded to Aa3(cr) from Aa2(cr)
Short term CR Assessment affirmed at P-1(cr)
Long term Deposit Rating downgraded to A1 from Aa3, outlook revised
to stable from negative
Short term Deposit Rating affirmed at P-1
Junior Subordinated Note Rating downgraded to A3(hyb) from A2(hyb)
Ratings outlook for the bank revised to stable from negative
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
SUBSCRIBERS: (852) 3551-3077
Minyan Liu
Associate Managing Director
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