Bangkok--5 Mar--Fitch Ratings
Fitch Ratings has placed one Issuer Default Rating (IDR) and various international scale debt ratings of 26 APAC banks under criteria observation (UCO).
A full list of the banks is available atthe end of this commentary.
The UCO placements follow the publicationon 28 February 2020 of the updated Bank Rating Criteria, which included changesto the way Fitch rates operating company subsidiaries (OpCos) of banking groupsheaded by bank holding companies (BHCs) and to the way Fitch notches senior andjunior debt ratings from their IDR or Viability Rating (VR) anchors.
The updated criteria better reflectscontinuing developments in bank resolution, notably developments in bankresolution plans, the build-up of bail-in debt buffers that protect more seniorcreditors and their implication for default risk and recovery prospects fordifferent senior and junior liability classes and for bank and non-bankfinancial institution operating companies relative to BHCs. Fitch has alsoreduced the base-case notching for non-performance on additional Tier 1 (AT1)instruments, narrowing the relative gap between Tier 2 and AT1 instrumentswhere Fitch has reappraised its baseline treatment of non-performance risk.
Ratings designated as being UCO will bereviewed and resolved as soon as practical and in any case within six months.
KEY RATING DRIVERS
Fitch has placed one IDR, and the seniordebt, subordinated debt and hybrid debt ratings of the 26 issuers on UCO. Thisreflects the possibility that these ratings will be upgraded or downgraded as aresult of the publication of our new Bank Rating Criteria on 28 February 2020,as outlined in more detail in the Rating Sensitivities section of this ratingaction commentary.
LONG-TERM IDR
The Long-Term IDR of Hang Seng BankLimited is driven by its VR and reflects Fitch's assessment that the bank'sintrinsic profile is sufficiently strong and balanced to weather furtherdeterioration in Hong Kong's economy without meaningful impairment of keyfinancial metrics.
SENIOR UNSECURED DEBT
Senior unsecured debt ratings of DBS GroupHoldings Ltd. are equalised with its IDR.
SUBORDINATED (TIER 2) DEBT
Subordinated debt ratings of all banks arenotched down once from their respective anchor rating to reflect Fitch'sexpectation of below-average recoveries. In each case the anchor rating istheir VR, except for Industrial and Commercial Bank of China (Macau) Limited(institutional support-driven IDR) and Woori Bank (sovereign support-drivenIDR).
HYBRID (TIER 1) DEBT
The ratings of hybrid debts with fullyflexible coupons, mostly AT1 debt, are notched down five times from theirrespective VR (two notches for loss severity and three for incrementalnon-performance risk).
RATING SENSITIVITIES
LONG-TERM IDR
The Long-Term IDR of Hang Seng BankLimited is placed on UCO, as it is a material subsidiary within the Asianresolution group of its ultimate BHC (HSBC Holdings plc, A+/Stable/a+). Its IDRcould be upgraded under the new criteria if Fitch concludes that externalsenior creditors are likely to benefit from resolution funds ultimately raisedby the BHC and designed to protect its senior creditors in a group failurescenario.
SENIOR UNSECURED DEBT
We have placed the senior unsecured debtrating of DBS Group Holdings Ltd. on UCO because it is issued by a holdingcompany and the rating could be downgraded under the new criteria to reflectbelow average recovery prospects if buffers of junior debt are likely to bethin, unless conditions under the new criteria for no notching prevail.
SUBORDINATED (TIER 2) DEBT
We have placed the subordinated (Tier 2)debt ratings of the following issuers on UCO because they could be downgradedto reflect the switch to a baseline notching of two notches for loss severityfrom the anchor rating under the new criteria (from one notch under previouscriteria) unless conditions under the new criteria for one notch prevail.
Australia and New Zealand Banking GroupLimited
Auswide Bank Ltd
Bangkok Bank Public Company Limited
Bank of Queensland Limited
Bendigo and Adelaide Bank Limited
China CITIC Bank International Limited
Chong Hing Bank Limited
Commonwealth Bank of Australia
CTBC Bank Co., Ltd.
Dah Sing Bank, Limited
DBS Group Holdings Ltd.
Heritage Bank Limited
Industrial and Commercial Bank of China(Macau) Limited
KASIKORNBANK Public Company Limited
Macquarie Bank Limited
MUFG Bank, Ltd.
National Australia Bank Limited
Oversea-Chinese Banking CorporationLimited
Shanghai Commercial Bank Limited
Southland Building Society
The Co-operative Bank Limited
United Overseas Bank Limited
Westpac Banking Corporation
Woori Bank
HYBRID (TIER 1) DEBT
We have placed the ratings of Tier 1 debtwith fully flexible coupons of the following issuers on UCO. These bonds couldbe upgraded to be notched four times from the anchor ratings under the newcriteria to reflect a reduction in incremental non-performance risk notching,unless conditions under the new criteria for wider notching prevail.
Australia and New Zealand Banking GroupLimited
DBS Bank Ltd.
DBS Group Holdings Ltd.
Oversea-Chinese Banking CorporationLimited
United Overseas Bank Limited
Westpac Banking Corporation
Additional information is available onwww.fitchratings.com