(The following statement was released by the rating agency)
Oct 31 - Fitch Ratings has affirmed Bank of China (Hong Kong) Limited's (BOCHK)
Long-Term Issuer Default Rating (IDR) at 'A' with Stable Outlook. The agency has also affirmed
the bank's Viability Rating at 'a', its Support Rating at '1' and its Support Rating Floor at
'A-'. A full list of rating actions is provided at the end of this rating action commentary.
The affirmation of BOCHK's IDRs, which reflect its intrinsic financial strength
as indicated by the VR, is underpinned by the bank's strong franchise, very
strong capitalisation, low risk appetite, sound asset quality and strong
liquidity. Potential pressures could arise from growing exposure to China and
continued intense competition in Hong Kong.
The Support Rating of '1' reflects an extremely high probability of support, in
case of need, from parent Bank of China (BOC; 'A'/Stable; 66% ownership), and,
ultimately, the Chinese government, despite that China's capital controls could
affect the timeliness of support. This is based on Fitch's view that BOCHK is a
core subsidiary of BOC.
The Support Rating Floor of 'A-' reflects Fitch's view that the Hong Kong
authorities would also provide support, in case of need. This is because BOCHK
is systemically important to Hong Kong ('AA+'/Stable) and also because BOC is
classified by the Basel committee as a globally systemically important financial
The ratings are constrained by BOCHK's exposure to China, and by the weaker
credit profile of its parent BOC (VR: 'bb'). Its VR could come under pressure
from further integration with the parent, if concentration risks, including
exposures to China, were to increase resulting in a weaker credit profile, and
if the bank aggressively expands with increasing risk appetite. A downgrade in
the VR might not by itself affect the IDRs unless Fitch believes that support
from BOC for BOCHK has diminished.
The bank's capitalisation remained exceptionally strong with a Fitch Core
Capital (FCC) ratio of 19.3% at end-H112. Fitch expects BOCHK to maintain Basel
3 ratios above those of peers due to lower capital deductions for associates and
stronger newly eligible revaluation reserves. The bank's FCC is still solid at
15.3% excluding property revaluation reserves (2011: 14.5%).
Fitch believes that BOCHK's strong loan quality is unsustainable as its exposure
to China (H112: 37% of assets) is likely to grow faster than that of the banking
sector (H112: about 26%). Losses from property loans should be contained given
low loan-to-value ratios.
The rating actions of BOCHK are as follows:
- Long-Term IDR affirmed at 'A'; Outlook Stable
- Short-Term IDR affirmed at 'F1'
- Viability Rating affirmed at 'a'
- Support Rating affirmed at '1'
- Support Rating Floor affirmed at 'A-'
- Senior unsecured securities affirmed at 'A'
- Lower tier-2 subordinated debt affirmed at 'A-'