TEXT-S&P summary: The Bank of East Asia (China) Limited

Thu Sep 6, 2012 4:51am EDT

(The following statement was released by the rating agency)

Sept 06 -

===============================================================================

Summary analysis -- The Bank of East Asia (China) Limited --------- 06-Sep-2012

===============================================================================

CREDIT RATING: A/Stable/A-1 Country: China

Primary SIC: Commercial banks,

nec

===============================================================================

Credit Rating History:

Local currency Foreign currency

01-Dec-2011 A/A-1 A/A-1

05-Nov-2007 A-/A-2 A-/A-2

===============================================================================

Ratings Score Snapshot

Issuer Credit Rating A/Stable/A-1

SACP bb+

Anchor bbb-

Business Position Adequate (0)

Capital and Earnings Moderate (-1)

Risk Position Strong (+1)

Funding and Liquidity Below Average

and Adequate (-1)

Support +5

GRE Support 0

Group Support +5

Sovereign Support 0

Additional Factors 0

Outlook

The stable rating outlook mirrors the outlook on BEA and reflects our belief that BEA China will continue to be a "core" subsidiary of BEA group.

An upgrade of BEA could trigger a similar action on BEA China. We could lower the rating on BEA China if we downgrade BEA or if we no longer consider BEA China to be a core subsidiary of BEA group. A change in the SACP of BEA China is not likely to have a direct impact on the issuer credit rating on the bank, unless it is significant enough to change the parent group's credit profile.

Rationale

The rating on The Bank of East Asia (China) Limited (BEA China) reflects the bank's status as a core subsidiary of The Bank of East Asia Ltd. (BEA; A/Stable/A-1; cnAA+/cnA-1). We expect the banking sector regulator in Hong Kong to allow BEA to provide timely support to its subsidiary in China.

We assess BEA China's stand-alone credit profile (SACP) as 'bb+' based on the anchor SACP for banks operating solely in China. We also consider BEA China's "adequate" business position, "moderate" capital and earnings, "strong" risk position, "below-average" funding, and "adequate" liquidity, as our criteria define the terms.

The anchor SACP for a commercial bank operating only in China draws on our Banking Industry Country Risk Assessment methodology and our view that China has an economic risk score of '6' and an industry risk score of '5'. We view China as a moderately resilient developing economy. Significant property price increases and rapid credit expansion over recent years have heightened China's exposure to an economic imbalance. Meanwhile, the country's high ratio of private sector credit to GDP and weak payment culture heighten credit risk in the economy. In terms of industry risk, market distortions due to prevalent state ownership and administrative control of interest rates present challenges to the sector. Nonetheless, sectorwide profitability is comparable with that of other sectors in the economy. A strong customer deposit base and proactive government role support systemwide funding.

FILED UNDER: