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Fitch Downgrades HK's Chong Hing Bank to 'BBB'; Outlook Stable
February 24, 2014 / 2:51 AM / 4 years ago

Fitch Downgrades HK's Chong Hing Bank to 'BBB'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, February 23 (Fitch) Fitch Ratings has downgraded Hong Kong-based Chong Hing Bank Limited's (CHB) Long-Term Issuer Default Rating (IDR) to 'BBB' from 'BBB+', Short-Term IDR to 'F3' from 'F2', and Viability Rating (VR) to 'bbb' from 'bbb+'. The Outlook is Stable. Fitch has removed the ratings from Rating Watch Negative (RWN), where they had been placed on 31 October 2013. A full list of rating actions is provided at the end of this release. The acquisition of a 75% stake in CHB by YueXiu Financial Holdings Limited (YueXiu), a beneficially wholly owned subsidiary of the Guangzhou Municipal People's Government, was completed on 14 February 2014 following approval from the Hong Kong Monetary Authority (HKMA) on 8 January 2014. CHB also sold its headquarters building and distributed about HKD2bn to shareholders via a special dividend on 20 February 2014. KEY RATING DRIVERS - IDRs, VR, and Subordinated Debt Rating The downgrade of CHB's VR and, in turn, its IDRs was triggered by the distribution of the special dividend and higher future operating costs, both of which reduce the bank's loss absorption capacity. Fitch believes that restoring its contingency buffer through internal capital generation will take time. Being part of a larger group should aid CHB's franchise and support its profitability. However, the shareholder change could lead to higher risk tolerance with an increase in China concentration risk being more difficult to mitigate purely through earnings and capital. The special dividend equals 3.7% of risk weighted assets at end-1H13. It was not reflected in the Fitch Core Capital (FCC) ratio of 12.9% as the property that was sold was not subject to mark-to-market valuation. The additional costs which CHB will incur to lease its headquarters building would have amounted to 9.5% of operating costs and 10.0% of pre-impairment profit in 1H13. The Stable Outlook reflects Fitch's view that management will pursue a measured expansion strategy maintaining historically sound underwriting policies and adequate capitalisation. CHB's subordinated debt rating was also downgraded. The debt is rated one notch below CHB's Long-Term IDR to reflect their subordination in the capital structure. RATING SENSITIVITIES - IDRs, VR, and Subordinated Debt Rating Aggressive China-related growth could lead to a downgrade of the ratings if it is not balanced by adequate pricing, capital and liquidity. Maintaining a high dividend pay-out ratio, for example by selling and distributing gains on CHB's remaining properties would also put pressure on the ratings because it will further reduce the bank's buffer against stress. Leveraging the parent's connections in mainland China could trigger an upgrade if it supports CHB's competitive market position and ultimately makes it more resilient against stress. CHB's subordinated debt ratings will be affected by changes to the bank's Long-Term IDR. RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR CHB's Support Rating (SR) and Support Rating Floor (SRF) have been affirmed, reflecting the moderate probability of support from the Hong Kong authorities, if needed, due to their limited systemic importance. Nevertheless, the SR and SRF face the prospect of being downgraded once Fitch completes its global review of how regulatory initiatives and the introduction of resolution schemes impact the authorities' stance on support. Even if the SR and SRF were downgraded, there would be no impact on the VR, and by implication, the bank's IDRs. As CHB's role in the YueXiu group evolves Fitch may reflect parental support from YueXiu or ultimately the Guangzhou Municipal People's Government based on its assessment of their ability and willingness to provide support. The rating actions are as follows: Long-Term Foreign Currency IDR downgraded to 'BBB' from 'BBB+'; Outlook Stable; removed from RWN Short-Term Foreign Currency IDR downgraded to 'F3' from 'F2'; removed from RWN Viability Rating downgraded to 'bbb' from 'bbb+'; removed from RWN Support Rating affirmed at '3' Support Rating Floor affirmed at 'BB' Lower tier-2 subordinated debt downgraded to 'BBB-' from 'BBB'; removed from RWN Contact: Primary Analyst Chikako Horiuchi Director +852 2263 9924 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Jin Hur, CA Analyst +852 2263 9944 Committee Chairperson Mark Young Managing Director +61 6796 7229 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014 and "Assessing and Rating Bank Subordinated and Hybrid Securities Criteria", dated 31 January 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Additional Disclosure Solicitation Status 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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