(Repeat for additional subscribers)
June 24 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Macao-based Tai Fung Bank's (TFB) and Industrial and Commercial
Bank of China (Macau) Limited's (ICBC Macau) Long-Term Issuer Default Ratings (IDR)
at 'BBB+' and 'A' respectively. The Outlooks are Stable. At the same time, TFB's Viability
Rating (VR) was also affirmed at 'bbb-'.
Fitch maintained Rating Watch Positive (RWP) on Banco Weng Hang's (BWH)
Long-Term IDR of 'A-' and Short-Term IDR of 'F2'. The IDRs of BWH and its 100%
parent Wing Hang Bank Limited (WHB; A-/RWP) were placed on RWP on 2 April 2014,
when Singapore's Oversea-Chinese Banking Corp (OCBC; AA-/Rating Watch Negative)
announced an acquisition of a majority stake in WHB. Successful completion of
the acquisition, which is subject to the approval of banking regulators in
Singapore, Hong Kong and Macao, is likely to trigger an upgrade of BWH's IDRs by
at least one notch following a similar rating action on WHB's IDRs.
A full rating breakdown is provided at the end of this rating action commentary.
KEY RATING DRIVERS - IDRS AND SUPPORT RATING (TFB)
TFB's IDRs and Support Rating of '2' reflect Fitch's view of a high probability
of support from its 50.3% shareholder, Bank of China (BOC; A/Stable). Fitch
believes BOC has the ability to provide support to TFB, a relatively small
subsidiary (2013: 0.4% of group's assets), as indicated by its sovereign
The Long-Term IDR is two notches lower than that of BOC, as Fitch views BOC
Macau branch's dominant market position and strong integration with BOC
overwhelm the strategic importance of TFB for the BOC group. However, it also
reflects TFB's operational integration with BOC through an integrated IT system,
as well as a joint ATM and branch network with BOC's Macau branch. Nevertheless,
the agency believes that TFB will retain significant autonomy over its
businesses with Macao residents. The high autonomy manifests itself in BOC's
below-majority representation in the TFB's board (five out of 13).
KEY RATING DRIVERS - IDRS AND SUPPORT RATING (ICBC Macau)
ICBC Macau's IDRs are aligned with its Chinese parent Industrial & Commercial
Bank of China (ICBC, A/Stable) reflecting that support from the Chinese
government for ICBC if required would extend to ICBC Macau given its core
importance to its parent. This takes into account ICBC Macau's role in ICBC's
cross-regional franchise and offshore renminbi business, and strong integration
with ICBC in management, funding and business generation. The Stable Outlook is
also in line with the Outlook on ICBC's IDR.
Fitch expects that ICBC will remain committed to supporting ICBC Macau with
liquidity and capital to accommodate its further growth. ICBC subscribed to ICBC
Macau's existing outstanding subordinated debt at end-2013. Fitch expects ICBC
Macau is likely to issue additional subordinated debt to support further growth.
KEY RATING DRIVERS - IDRS AND SUPPORT RATING (BWH)
BWH's IDRs are aligned with WHB. These, together with its Support Rating of '1',
reflect the BWH's core importance to, and close integration with WHB. As the
core operating entity of WHB, Fitch considers the probability of parental
support for BWH to be extremely high if required.
The RWP on the IDRs reflect Fitch's view that both WHB and BWH will become
strategically important subsidiaries of OCBC if the acquisition is completed.
Fitch believes BWH would benefit from OCBC's institutional support, given
Macao's strategic importance for OCBC's Greater China expansion strategy and
BWH's high level of integration with WHB.
BWH is a main pillar supporting WHB's growth across Hong Kong, Macao and China.
BWH is well integrated with WHB in business strategies, risk management and IT
Fitch believes WHB will provide liquidity and capital support if needed as BWH's
loan growth (2013: 20%, yoy) and profit contribution (2013: 14% of the group's
operating profit) are vital for WHB.
RATING SENSITIVITIES - IDRS AND SUPPORT RATING (BWH, TFB and ICBC Macau)
All banks' IDRs and Support Ratings are sensitive to any changes to their
respective parents' ratings or their propensity or ability to extend
extraordinary support in a timely manner.
Completion of the acquisition of WHB by OCBC is likely to trigger an upgrade of
BWH's IDRs by at least one notch following a similar rating action on WHB's
KEY RATING DRIVERS - VR (TFB)
TFB's VR reflects its adequate financial profile, complemented by operational
support from its parent. Risk appetite is considered higher which, when combined
with rapid growth, may stretch management and risk controls. Satisfactory
profitability driven by volume growth and high general reserve (1% of risk
weighted assets) will assist the bank to withstand risk concentrations and
volatility in the operating environment.
TFB has an established local franchise with the third largest market share in
deposits (2013: 8.6% of the system). Growing deposits have funded rapid credit
growth (2013: 27% yoy) driven by an increase in residential mortgages and
syndicated loans both in Macao and the mainland. This has placed pressure on
capitalisation with Fitch Core Capital (FCC) ratio at 13.6% at end-2013. BOC
subscribed to half of TFB's MOP2bn subordinated debt issued in 2013 to support
growth, which added 4.4pp to the bank's regulatory capital adequacy ratio (14.9%
RATING SENSITIVITIES - VR (TFB)
TFB's VR is vulnerable to negative rating actions due to Macao's volatile
operating environment and persistent pressure on capital due to rapid credit
growth. The rating could come under pressure if the bank does not adjust a pace
of asset growth to balance with capital generation. Negative rating pressure
will also rise if there are increased property concentrations and direct China
The rating actions are as follows:
Tai Fung Bank
- Long-Term foreign currency IDR affirmed at 'BBB+'; Outlook Stable
- Short-Term foreign currency IDR affirmed at 'F2'
- Viability Rating affirmed at 'bbb-'
- Support Rating affirmed at '2'
Long-Term foreign currency IDR affirmed at 'A'; Outlook Stable
Short-Term foreign currency IDR affirmed at 'F1'
Support Rating affirmed at '1'
Banco Weng Hang
- Long-Term foreign currency IDR of 'A-'; RWP
- Short-Term foreign currency IDR of 'F2'; RWP
- Support Rating affirmed at '1'