(Repeat for additional subscribers)
July 12 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Macao-based Tai Fung
Bank's (TFB) and Banco Weng Hang's (BWH) 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-'. 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). This is
because BOC's strong ability to provide support as indicated by its sovereign
TFB's IDRs are notched down twice from BOC's IDRs to reflect Fitch's view of the
latter's limited importance to the Chinese parent. Fitch believes that
reputational risk from a default of TFB, one of Fitch's defining characteristics
when assessing the propensity for parental support, would be manageable for BOC.
As Macau's oldest bank TFB benefits from established market recognition, which
provides a strong retail customer base. However, complementary benefits for BOC
TFB has strengthened its integration with BOC with an introduction of shared IT
system in 2012. Business strategies and risk management are aligned with BOC but
TFB maintains autonomy over its businesses with Macao residents.
KEY RATING DRIVERS - IDRS AND SUPPORT RATING (BWH)
BWH's IDRs are aligned with its parent Wing Hang Bank Limited's (WHB,
A-/Stable). These, together with its Support Rating of '1' reflect the former's
strong strategic importance to and integration with WHB. As the core operating
entity of WHB, Fitch considers the probability of extraordinary institutional
support for BWH from the ultimate parent to be extremely high if required.
BWH is key to WHB's strategy of growing Macao as a core market, although the
former's market share remains limited (2012: 3% of total assets). BWH is also
likely to remain a stable profit contributor to WHB (15% of operating profit in
2012), BWH is WHB's second-largest subsidiary (2012: 13% of group's assets)
after Wing Hang Bank (China)'s (WHBC).
BWH's business strategies, risk management and IT system are well integrated
with WHB's. BWH maintains operational independence and reports to the parent
monthly for material developments such as lending policy exceptions and budget
Fitch does not assign Viability Rating to the bank as its intrinsic credit
strength is subject to operational and financial integration with WHB.
RATING SENSITIVITIES - IDRS AND SUPPORT RATING
TFB's and BWH's IDRs and Support Ratings are sensitive to any changes in their
parents' ratings or their propensity to extend extraordinary support.
KEY RATING DRIVERS - VR (TFB)
TFB's VR reflects the bank's satisfactory balance sheet strength, complemented
by operational support from BOC. It remains constrained by its small size (2012:
7% of system assets), by its concentration to the real estate sector and by
Macao's small and volatile economy.
The bank remains vulnerable to Macao's volatile property market, given that
residential mortgages and commercial property lending accounted for 16% and 17%
of total assets at end-2012. TFB's Fitch Core Capital ratio (FCC), Fitch's
primary measure of bank capitalisation, was the lowest among rated peers in
Macao at 11% in 2012 if large revaluation gains on properties were excluded.
Nevertheless, the FCC ratio is likely to remain adequate under Fitch's stress
scenarios due to large general reserves, high collateral coverage and moderate
loan-to-value ratios around 60%.
TFB's mainland exposures, which amounted to 23% of total assets at end-2012,
were mainly claims on Chinese banks, including its parent. This compares with
30% for ICBC Macau and 8% for BWH. Non-bank exposures, which amounted to 9% of
total assets, were essentially lending to subsidiaries of Hong Kong
conglomerates and to Macao residents purchasing properties in China. The former
is likely to be a key growth driver, even though BOC encourages TFB to increase
its overall China-related activities. Bank exposures are mostly to large
state-owned banks in mainland including BOC.
RATING SENSITIVITIES - VR (TFB)
Adverse changes to risk-mitigation policies - general reserves, collateral and
LTVs - and inadequate risk-adjusted pricing would exert negative pressure on the
bank's loss absorbing ability. Significant pressure on asset quality from a
sudden and rapid correction in the property price, material slowdown in Macao's
tourism industry and higher single name concentration would be negative for the
The rating actions are as follows:
- Long-Term IDR affirmed at 'BBB+'; Outlook Stable
- Short-Term IDR affirmed at 'F2'
- Viability Rating affirmed at 'bbb-'
- Support Rating affirmed at '2'
Banco Weng Hang
- Long-Term IDR affirmed at 'A-'; Outlook Stable
- Short-Term IDR affirmed at 'F2'
- Support Rating affirmed at '1'