Hong Kong, April 27, 2018 -- Moody's Investors Service has today announced multiple rating actions
on Hong Kong banks following yesterday's publication of an update to its
Banks rating methodology.
The rating actions affect all 18 rated Hong Kong-domiciled banks,
their overseas branches and special purpose vehicles (SPVs).
Moody's has placed the following on review for upgrade:
- 9 banks' long-term deposit ratings
- 2 banks' short-term deposit ratings
- 5 banks' long-term senior unsecured ratings
- 1 banks' long-term issuer rating
- 1 banks' short-term commercial paper rating
- 13 banks' long-term counterparty risk assessment
(CR Assessment)
- 3 banks' short-term CR Assessment
- 3 banks' point of non-viability (PONV) subordinated
debt
At the same time, Moody's has affirmed nine banks' long-term
deposit ratings, three banks' senior unsecured debt ratings,
two banks' long term CD program ratings and one bank's issuer
rating. Moody's has changed one bank's outlook to negative
from stable.
Moody's has also affirmed eight banks' Basel II-compliant
subordinated debt ratings, four banks' PONV subordinated debt
ratings, five banks' preferred shares ratings, and five
banks' long term CR Assessment.
In yesterday's updated Banks rating methodology, Moody's formally
designated Hong Kong as an operational resolution regime jurisdiction.
Going forward, Moody's will adopt the advanced loss given
failure (LGF) framework to evaluate Hong Kong banks' liabilities,
taking into account how the regulator will likely treat different creditors
when a bank fails and enters resolution.
Moody's will also lower its expectation of Hong Kong government's
likelihood of supporting Hong Kong banks in light of Hong Kong's
revised resolution regime. However, the impact of lower likelihood
of support on deposits and senior unsecured debt should be offset for
many banks by a decline in expected losses under the new LGF framework,
given the subordination of junior creditors under Hong Kong's going-concern
resolution approach.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_199267
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
-- LONG TERM RATINGS AND CR ASSESSMENT
Moody's advanced LGF framework assesses the potential impact of
a bank's failure on its various debt classes and deposits in the absence
of any government support, taking into account the subordination
of more junior liabilities and the volume of each class of liabilities.
Moody's expects that Hong Kong's legislation will enable authorities
to achieve orderly resolution of a failed bank. It also provides
a reasonable degree of clarity on how the bank's failure could affect
depositors and other creditors.
Under Moody's advanced LGF framework, the ratings of senior
liabilities will benefit from the subordination of junior liabilities,
as loss absorption by junior creditors reduces the extent of potential
losses for senior creditors. Where appropriate, given expected
regulatory requirement and public commitment of the rated banks,
Moody's will take into account banks' expected issuance of
loss absorbing capacity (LAC) debt instruments in the forward-looking
advanced LGF analysis.
The combination of instrument volume and subordination should lead to
expected loss under the LGF analysis sufficiently low to offset the diminished
expectations of government support for many banks. Moody's
currently incorporate Hong Kong government support uplift in five Hong
Kong banks' ratings, with two banks benefiting from more than
one notch of support uplift. As such, few Hong Kong banks
will be affected by the expected decline in government support.
Among the four largest banks in Hong Kong, Moody's has placed
the deposit ratings of The Hongkong and Shanghai Banking Corp.
Ltd, Hang Seng Bank Limited, and Standard Chartered Bank (HK)
Limited on review for upgrade. These banks are all important subsidiaries
of non-emerging market global systemically important banks (G-SIBs),
and are expected to need to meet specific LAC requirement.
Moody's has changed the outlook on Bank of China (Hong Kong) Limited's
deposits to negative from stable. The negative outlook takes into
account potential reduction in future government support, and uncertainty
regarding the timing and quantum of the bank's future LAC issuance.
Moody's has placed the majority of the mid-sized Hong Kong
banks' deposit and senior unsecured ratings on review for upgrade.
The majority of the rated mid-sized banks have substantial issuances
of outstanding preferred shares and subordinated debt. The subordination
of the junior creditors in future resolutions should limit the extent
of losses for depositors and senior unsecured creditors in future resolution.
On the other hand, most of these banks' deposit and senior
unsecured ratings do not factor in support from the Hong Kong government,
and therefore not impacted by lower likelihood of future Hong Kong government
support for banks.
-- SUBORDINATED DEBT
Three Hong Kong banks' PONV subordinated debt have been placed on
review for upgrade. Moody's currently rates these banks'
PONV subordinated debt two notches below their standalone baseline credit
assessment (BCA) and one notch below their legacy subordinated debt rating.
The wider notching took into account uncertainty over the timing of loss
absorption given potential regulatory discretion over the determination
of non-viability.
Moody's expects the revised bank resolution framework to reduce
the uncertainty over when Hong Kong resolution authority will declare
banks to be non-viable. Hong Kong's legislation specifies
conditions that need to be met before the resolution authority can initiate
resolution action on banks. At the conclusion of the review,
Moody's expects to upgrade the affected banks' PONV subordinated
debt ratings by one notch.
Moody's expects to conclude the reviews on banks' ratings in the
coming few months. During the review period, Moody's will
assess the impact of the new methodology on rated instruments and will
focus on advanced LGF analysis taking into account banks' latest
published financial data, finalization of the LAC rules for Hong
Kong, application of the LAC rules to specific banks, and
where appropriate, banks' public announcements of their issuance
plans, as well as the likelihood of Hong Kong government support
for the rated banks.
The principal methodology used in these ratings was Banks published in
April 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
RELATED RESEARCH REFERENCES
For further details please refer to the following:
- Bank rating methodology: Rating Methodology: Banks
- April 2018
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1098718
- Press release: Moody's designates Hong Kong as an
operational resolution regime (ORR) in an update to its banks rating methodology
https://www.moodys.com/research/Moodys-designates-Hong-Kong-as-an-operational-resolution-regime-ORR--PR_382614
Please see the credit opinions of specific issuers on www.moodys.com
for the more detailed implications of the issuer rating actions.
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.
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 rating 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.
Sonny Hsu, CFA
VP - Senior Credit Officer
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
