Fitch af­firms Bank of China Hong Kong

The Pak Banker - - Front Page -


Global rat­ing agency Fitch 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-'.

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 in­sti­tu­tion.

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 endH112. 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%).

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