June 16, 2017 / 9:02 AM / 6 months ago

Fitch Affirms Two Macao Banks; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, June 16 (Fitch) Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of Industrial and Commercial Bank of China (Macau) Limited (ICBC Macau) at 'A' and Banco OCBC Weng Hang, S.A. (BWH) at 'A+'. The Outlooks are Stable. A full list of rating actions is at the end of this rating action commentary. The rating actions follow Fitch's periodic review of the Macao banks. Fitch views Macao's short-term banking sector outlook as less negative than our assessment in the last year, on the back of an improving economy, which had contracted in 2015 and 2016. Fitch is forecasting Macao's growth to pick up to 5.0% in 2017 (1Q17: 10.3%), supported by a recovery in gaming revenue, which is expected to grow by 12% in 2017. The medium-term trend on Macao banks' operating environment remains challenging and potentially volatile, but is also less negative than what we have previously assessed. KEY RATING DRIVERS IDRS AND SUPPORT RATING ICBC Macau's IDRs are aligned with those of Industrial and Commercial Bank of China Limited (ICBC; A/Stable/bb), reflecting a very high probability that support would be provided to the bank by its 89.3% shareholder. ICBC's ability to provide support is indicated by the bank's IDR, which in turn is driven by Fitch's opinion that the Chinese authorities would very likely support it in the event of stress, and that state support would also include ICBC Macau. ICBC Macau plays an important role in the Greater China strategy of ICBC, providing offshore cross-border financing services to Chinese corporates. We view that a default of ICBC Macau would pose a high reputational risk to ICBC, given the subsidiary's strong strategic and business integration with the parent and their shared brand identity. Strong ordinary support from ICBC is also evidenced from its periodic capital injections and subscription of subordinated debt issued by ICBC Macau. BWH's ratings are driven by Fitch's expectation of support from its ultimate parent, Singapore-based Oversea-Chinese Banking Corp (OCBC; AA-/Stable/aa-). That reflects our assessment of OCBC's strong ability and high propensity to support BWH as it complements OCBC's Greater China strategy. The banks share a similar brand identity and the level of operational integration between BWH, its immediate Hong Kong-based parent OCBC Wing Hang Bank Ltd (WHB; A+/Positive/a-) and OCBC continues to improve, with BWH contributing 17.3% to WHB's net profit in 2016. However, Fitch sees only moderate business synergies between the Macao bank and OCBC, which has resulted in Fitch maintaining a one-notch difference between the IDRs of BWH and OCBC for now. The Stable Outlooks of the two banks mirror those of their respective ultimate parents. Fitch does not assign Viability Ratings to ICBC Macau and BWH as both banks' operations and risks are tightly controlled by their parents and both significantly benefit from their parents' franchise. SUBORDINATED DEBT (ICBC MACAU) ICBC Macau's legacy 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 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. Our view on ICBC's and OCBC's ability is fully described in "Fitch Affirms China's 5 State Banks at 'A'", dated 23 May 2017 and "Fitch Affirms Major Singapore Banks at 'AA-'; Outlook Stable", dated 25 May 2017, available at www.fitchratings.com. Our view on ICBC's propensity to support ICBC Macau could change negatively if its role and integration with the parent were to significantly weaken. BWH's ratings could be upgraded if we view any increased propensity for OCBC to support BWH, most likely due to strengthened integration between OCBC and BWH, enhanced synergies between the two entities, and Fitch expecting the Macao bank to remain core to its Singapore parent's long-term strategy. SUBORDINATED DEBT (ICBC MACAU) ICBC Macau's subordinated debt rating is broadly sensitive to the same considerations that might affect its IDR. The rating actions are as follows: 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' 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 Ambreesh Srivastava Senior Director +65 6796 7218 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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