July 6, 2017 / 3:59 AM / a month ago

Fitch Rates Chong Hing Bank's Subordinated Notes 'BBB-(EXP)'

(The following statement was released by the rating agency) HONG KONG, July 05 (Fitch) Fitch Ratings has assigned Hong Kong-based Chong Hing Bank Limited's (CHB; BBB/Stable) proposed Basel III-compliant Tier-2 subordinated notes an expected 'BBB-(EXP)' rating. The USD300 million-500 million of notes will mature after 10 years and will be callable by CHB after five years. They will qualify as Tier-2 capital as their terms include a point of non-viability that the authorities may trigger at their discretion. The terms also make explicit reference to the Hong Kong resolution authorities' statutory bail-in powers under The Financial Institutions (Resolution) Ordinance, which will come into effect on 7 July 2017. The new issuance will be used by the bank to strengthen its capital base and to fund business growth. The notes represent direct, unsecured, and subordinated obligations of CHB. The final rating is contingent on the receipt of the final documents conforming to information already received. KEY RATING DRIVERS Fitch rates the notes one notch below CHB's Viability Rating of 'bbb', which is the anchor rating for the notes. The one-notch difference reflects the notes' below-average recovery prospects relative to senior unsecured instruments, as well as their partial contractual loss-absorption feature that allows for a permanent write-down in full or in part. In addition, the Hong Kong Monetary Authority (HKMA) can override the notes' contractual terms through its resolution powers if it considers it necessary to restore the bank's viability. We consider it possible that noteholders would only lose part of their investment in such a statutory bail-in scenario as the authorities would be guided by the principle that no creditor should be worse off in resolution compared to bankruptcy. We apply no additional notching for non-performance as the point of non-viability broadly coincides with what we express in the anchor rating. CHB's ratings were affirmed on 11 May 2017, reflecting its small domestic franchise and rapid China-related growth through customer referrals from its 75% parent, Yue Xiu Group, resulting in high mainland China exposure of 40% of assets at end-2016 (2015: 41%). A steady increase in operating profit from China-related lending is offset by below-peers contribution from non-loan businesses and lower cost efficiency. RATING SENSITIVITIES The rating on the notes is sensitive to any changes in CHB's Viability Rating, which in turn is sensitive to the performance of its China-related activities, maintenance of sufficient loss-absorption buffers and stringent risk controls. Contact: Primary Analyst Veronica Lau Director +852 2263 9924 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Sabine Bauer Senior Director +852 2263 9966 Committee Chairperson Tim Roche +61 2 8256 0310 Senior Director Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT WWW.FITCHRATINGS.COM. 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