OREANDA-NEWS. Fitch Ratings has today affirmed the Long-Term Issuer Default Rating (IDR) of DBS Bank (Hong Kong) Limited (DBSHK) at 'AA-' and that of OCBC Wing Hang Bank Limited (WHB) at 'A+'. The Outlooks are Stable. A full list of rating actions is at the end of this rating action commentary.

The affirmation of the ratings on DBSHK and WHB reflect Fitch's view that the ability and propensity of their respective parents to support the banks remain unchanged. The two banks' IDRs are driven by institutional support from their parents. DBSHK is 100%-owned by DBS Bank Ltd. (DBS; AA-/Stable) and WHB is wholly owned by Oversea-Chinese Banking Corp (OCBC; AA-/Stable).

Fitch classifies DBSHK as a core subsidiary of DBS, reflecting the parent's full ownership, DBSHK's high level integration in the group operation and its key role in the group's expansion strategies in Greater China. The Support Rating (SR) of '1' reflects Fitch's view of an extremely high probability of support from the parent, if needed. The IDRs also take into account the parent's strong ability to extend extraordinary support on a timely basis.

Fitch maintains a one-notch difference in the IDRs of WHB and OCBC, as deeper integration through business referrals, sharing of treasury and risk management practices and stronger synergies between WHB and OCBC's Greater China businesses will likely only evolve over the longer term. The IDRs and SR of WHB reflect Fitch's classification of WHB as a strategically important subsidiary of OCBC, due to the bank's contribution to OCBC's Greater China strategy. WHB's source of funding, customer base and established franchise will continue to support OCBC to develop its offshore yuan business.

The Stable Outlooks of the two banks mirror that of their parents.

WHB's Viability Rating (VR) of 'a-' captures the bank's solid loss absorption buffers, stable asset quality and good intrinsic strength, underpinned by higher operational group support from OCBC. WHB's Fitch Core Capital ratio compares well with that of peers at 15% at end-1H15, while its impaired loan ratio remained stable at 0.43%. We expect the bank to continue to maintain tight underwriting standards and risk controls to mitigate concentration risks from higher property and China exposures, given its aspirations to accelerate its China-related growth after OCBC acquired WHB in 2014.

Fitch expects operational benefits from the acquisition to materialise gradually over the longer-term. These benefits include the ability to tap the cross-border trade flows of larger corporates by leveraging OCBC's larger franchise, benefits of diversification and economies of scale, and increased cross-selling opportunities in non-loan businesses.

WHB's pre-impairment profitability of 1.08% of average assets at end-1H15 was below that of Fitch-rated peers, due to higher costs from the ongoing integration with the parent and low contribution from the non-loan business.

Fitch rates WHB's perpetual junior subordinated debt without non-viability clauses three notches from its Long-Term IDR - two notches for higher non-performance risk given its interest deferral features and one notch for below-average loss severity. The use of IDR as the anchor rating reflects Fitch's expectation that parental support would flow through to the subordinated debt.

Both banks' IDRs and SRs are sensitive to any change in Fitch's assumptions around the propensity or ability of their respectively parents to provide timely support to the subsidiary banks.

Positive rating actions would be taken on WHB's ratings if WHB were to become more integrated with OCBC, which would typically be evident in stronger linkages through group management control and less day-to-day operation autonomy retained by WHB.

WHB's VR is sensitive to any change in the bank's risk appetite. In particular, a rising risk appetite that is not accompanied by adequate mitigation measures or improvements in risk management could be negative for the VR. Failure to improve profitability that is below that of peers over a sustained period may also be negative for the rating. Meanwhile, greater operational support from the parent leading to a stronger franchise, competitive advantages and more diverse and stable business model may be positive for WHB's VR.

WHB's subordinated debt rating is primarily sensitive to a change in the bank's IDRs.

The rating actions are as follows:

DBS Bank (Hong Kong) Limited
Long-Term Foreign-Currency IDR affirmed at 'AA-'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'F1+'
Support Rating affirmed at '1'

OCBC Wing Hang Bank Limited
Long-Term Foreign-Currency IDR affirmed at 'A+'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'F1'
Long-Term Local-Currency IDR affirmed at 'A+'; Outlook Stable
Viability Rating affirmed at 'a-'
Support Rating affirmed at '1'
Perpetual junior subordinated notes affirmed at 'BBB+'