Fitch: Singaporean Banks' Diversification Drive Continues

Wed Jan 8, 2014 9:00pm EST

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(The following statement was released by the rating agency) SINGAPORE, January 08 (Fitch) Singapore-based Oversea-Chinese Banking Corp's (OCBC, AA-/Stable) potential takeover of Hong Kong-based Wing Hang Bank (A-/Stable)) reflects its continuing drive to diversify its business - and especially with regard to greater China, which has long been articulated as one of its targeted markets. If the proposed acquisition is successful, OCBC's exposure to greater China should rise significantly - from 15% of total loans to around 25%. This could potentially weigh negatively on the bank's credit profile, as the credit, operating and regulatory risks are higher in such markets than in its home turf of Singapore. The WHB acquisition would provide OCBC a more robust platform for expanding into China's large and rapidly growing market. However, the extent to which the ratings could be potentially pressured in the near-term depends in part on the cost of the acquisition and the manner of its financing. The overseas expansion strategy of Singaporean banks is not a new phenomenon, and has been ongoing for the last decade. The Singaporean banking system is saturated, increasingly leveraged, and characterised by thin margins, so a greater reliance on regional markets for growth have become integral to Singaporean banks' operating strategies. Regional expansion heightens the risk for the banks' profile, but this has so far been managed in a prudent manner, with a sound risk management record and the maintenance of high core capital. Singapore banks are prepared to walk away from transactions should there be constraints to gaining control, as was evident from the failed DBS/Danamon deal earlier in 2013. The agency has highlighted in the past that that this trend is likely to apply downward pressure on the ratings of Singaporean banks in the medium term. This arises from the growing influence of high-growth but also higher-risk markets such as China, India and Indonesia on the banks' credit fundamentals, through their regional expansion and these economies' rising interconnectedness - especially with Hong Kong and Singapore. The proposed takeover is not a binding offer, and would remain subject to regulatory approval. If it goes through, it would be OCBC's largest acquisition since its USD2.8bn purchase of Keppel Capital Holdings Ltd. in 2001. WHB, with assets of USD26bn, is around 10% of the size of OCBC. Mikho Irawady Associate Director Financial Institutions +65 6796 7230 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Ambreesh Srivastava Senior Director +65 6796 7218 Aninda Mitra Senior Director Fitch Wire +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: 2014 Outlook: Asia-Pacific Banks here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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