Fitch Affirms Three Macao Banks; Outlook Stable
The affirmations reflect Fitch's view that timely and extraordinary support from their parents will flow to the three Macao banks, if required. We believe the support for ICBC Macau and TFB will ultimately come from the Chinese government as their respective parents, Industrial and Commercial Bank of China Ltd (ICBC; A/Stable) and Bank of China Ltd. (BOC, A/Stable) are state-owned.
The rating actions follow Fitch's peer group review for banks in Macao, in which Fitch lowered the outlook on the operating environment for Macao banks to negative to reflect rising risks from a sustained decline in property prices in Macao, depressed gaming revenues, and the slowdown of China's economy. This is in line with Fitch's negative sector outlook for Macao banks for 2016.
KEY RATING DRIVERS
IDRS AND SUPPORT RATINGS
The affirmations of Tai Fung Bank's IDRs and Support Rating (SR) at '2' reflect Fitch's view the bank is of limited importance to its 50.3% shareholder, BOC. Fitch maintains a two-notch gap between the IDRs of Tai Fung Bank and BOC due to limited integration and synergies between the two, the subsidiary's significant management autonomy, their separate IT systems and their different branding identities. Tai Fung Bank's relative size - 0.6% of BOC's total assets at end-2015 - is small and it is overshadowed by BOC's Macao branch, which is the largest bank in Macao.
ICBC Macau's IDRs are aligned with those of ICBC, which owns 89.3% of the subsidiary, because Fitch views ICBC Macau as a core subsidiary to ICBC. The SR of '1' captures Fitch's view that a default of ICBC Macau would pose huge reputational risk to ICBC, the subsidiary's integration with the parent is strong, the group has a centralised risk management system, their shared brand identity and the subsidiary's important role in providing offshore cross-border financing services in Greater China. In 2015, ICBC injected USD360m of capital and provided a new standby facility to ICBC Macau.
BWH's IDRs and SR at '1' are based on its strategic importance to its ultimate parent Oversea-Chinese Banking Corp (OCBC; AA-/Stable). The one-notch difference between the IDRs of BWH and OCBC reflects that BWH is still being integrated into OCBC even though the Singapore-based bank has identified Greater China as a core market. OCBC acquired BWH's parent OCBC Wing Hang Bank (WHB; A+/Stable) in 2014.
The Stable Outlooks of the three banks mirror those of their respective parents.
VR (TFB)
Fitch downgraded Tai Fung Bank's VR because the bank's financial profile, in particular its capitalisation, has weakened gradually. In addition, Fitch expects the bank's higher risk appetite and the weaker economic environment to pose challenges to the bank's earnings and capital.
Tai Fung Bank's Fitch Core Capital (FCC) ratio, excluding large property revaluation reserves, fell to 7% of risk-weighted assets (RWA) at end-2015, which was below the average of its peers, from 9% at end-2014. RWAs grew by 42% in 2015, driven in part by expansion and Macao's migration from the Basel I regime to Basel II in October 2015. TFB's regulatory total capital ratio of 13.3%, which is well-above regulatory minimum of 8%, reflects its increased loss-absorption buffers following the issuance of MOP2.6bn of preference shares in 2015.
Tai Fung Bank's mainland China exposure grew by 35% in 2015 to 2x of its FCC (2014: 1.6x) due to growing non-bank exposure. The bank's property-related loans remain large at 46% of the total underpinned by 12% growth in 2015. We see a growing risk from the sharp rise in the bank's equity investments, which amounted to 24% of its FCC at end-2015 (end-2014: 4%).
TFB's adequate funding and liquidity position benefits from its local franchise as the third-largest bank in Macao, although its funding base is concentrated in a few large funding providers. The bank's reported NPL ratio was only 0.04% at end-2015, the lowest among Fitch-rated Macao banks, but we consider the NPL ratio to be a lagging indicator that could deteriorate quickly under the current difficult operating environment.
Fitch does not assign a VR to ICBC Macau as the bank does not have a meaningful standalone franchise given its high integration with ICBC. We also do not assign a VR to BWH as the entity remains closely linked to its direct parent WHB.
SUBORDINATED DEBT (ICBC Macau)
ICBC Macau's subordinated debt is rated one notch below its IDR to reflect higher loss severity relative to senior unsecured debt. The IDR is used as the anchor rating because Fitch believes ICBC would likely extend support to repay the subordinated debt, if required.
RATING SENSITIVITIES
IDRS AND SUPPORT RATINGS
The three banks' IDRs and SRs are sensitive to changes in assumptions around the ability and propensity of their respective parents to provide support in a timely manner.
Tai Fung Bank's IDRs and SR, and BWH's IDRs could be upgraded if they were to strengthen their integration with their parents.
ICBC Macau's IDRs and SR could be downgraded if the support from ICBC was to weaken.
VR (Tai Fung Bank)
TFB's VR could be upgraded if the bank were to strengthen its capital base, diversify its business composition and maintain satisfactory asset quality through the economic cycle.
Its VR could be downgraded if its risk appetite, asset quality and capitalisation were to materially deteriorate. However, this is not Fitch's base case.
SUBORDINATED DEBT (ICBC Macau)
ICBC Macau's subordinated debt rating is broadly sensitive to the same considerations that might affect ICBC Macau's IDR.
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 downgraded to 'bb+' from 'bbb-'
Support Rating affirmed at '2'
ICBC Macau
Long-Term Foreign-Currency IDR affirmed at 'A'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'F1'
Support Rating affirmed at '1'
Subordinated notes affirmed at 'A-'
Banco OCBC Weng Hang
Long-Term Foreign-Currency IDR affirmed at 'A+'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'F1'
Support Rating affirmed at '1'
Комментарии