Fitch Affirms Singapore's DBS, OCBC and UOB; Outlook Stable

(The following statement was released by the rating agency) SINGAPORE, April 17 (Fitch) Fitch Ratings has affirmed the ratings of three Singapore banks - DBS Bank Ltd. (DBS), Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank Limited (UOB) - including their Long-Term Issuer Default Ratings (IDRs) at 'AA-' with Stable Outlook, and Viability Rating (VR) at 'aa-'. The ratings of DBS Bank (Hong Kong) Limited (DBSHK) and DBS Bank (Taiwan) Ltd (DBS Taiwan) have also been affirmed, with several new ratings assigned to the latter. A full rating action breakdown is provided below. Rating Drivers The Singapore banks' IDRs are driven by their VRs, with the affirmation and Stable Outlooks reflecting Fitch's view that their strong intrinsic financial profiles will remain comparable with their highly-rated international peers over the medium term. Notable credit strengths are the banks' core capitalisation, domestic funding franchises and close regulatory oversight. Sound risk management and generally diversified loan books and earnings also contribute to the banks' demonstrated resilience through economic cycles. These strengths are counterbalanced by potential challenges emanating from Singapore's elevated property prices, and banks' varying regional aspirations, as exposures to less developed markets are likely to gradually climb over the long term. Rating Sensitivities - VRs and IDRs Upside is limited for the banks' ratings, which are among the highest of banks in developed countries. Negative rating actions could arise from a protracted economic downturn that leads to heightened asset quality and capital impairment risks for the banks. However, the likelihood of widespread stress within the banking sector is remote, given the Singapore government's demonstrated willingness in curbing excesses during buoyant periods and mitigating downside risks during difficult times. As such, Fitch believes cyclical credit costs will be manageable and easily absorbed by earnings alone, thus posing little risk to capital. Regionalisation is also adding pressure to the banks' VRs. Expansion into fast-growing but riskier Asian economies is on-going and likely to continue. To date, this trend has been mitigated by a conservative record in overseas markets, the maintenance of high core capitalisation and steady domestic deposit bases, and Singapore's conservative regulator. In the medium term, however, downward rating pressure could arise from the growing influence on the banks' credit fundamentals of high-growth higher-risk markets such as China, India and Indonesia, through their regional expansion and these economies' rising interconnectedness with many other Asian economies, especially Hong Kong and Singapore. The rating impact could vary depending on the geographical mix, economic dynamics over time, the respective banks' balance sheet strengths and track record as well as on how the Singapore regulator would be adapting to a changing environment. Deposits will remain central to funding base in all their core markets, with the overall loan/deposit ratio stable within 85%-90%. Wholesale borrowings have remained modest. Core capital is around 12% of risk-weighted assets and 7% of tangible assets, above levels at most highly-rated banks globally. This, together with other forms of stricter prudential rules, highlights the stringent track record of the Monetary Authority of Singapore. These factors will continue to play a role in ensuring that Singapore banks have strong loss absorption qualities and that they will remain resilient through economic cycles. Rating Sensitivities - Support Ratings and Support Rating Floors The Support Ratings and Support Rating Floors reflect Fitch's view of a very high probability of extraordinary state support, if needed, for Singapore banks. This view stems from the banks' high degree of systemic importance, as they collectively account for around 60% of SGD deposit base. The government's strong ability to extend support is underpinned by its 'AAA' ratings. A change in the willingness and ability of the government to provide timely support would be negative for the Support Ratings and Support Rating Floors. One development that could lead to such an outcome is the global initiative to reduce implicit state support available to banks. Rating Sensitivities - Debt Ratings The ratings of senior notes and commercial paper programmes are the same as the banks' respective Long- and Short-Term IDRs. This is because these debt constitute direct, unsubordinated and senior unsecured obligations of the banks, and rank equally with all their other unsecured and unsubordinated obligations. Any change in the IDRs would affect these issue ratings. Subordinated Lower Tier 2 notes are rated one notch below the banks' 'aa-' VRs to reflect their subordination status and the absence of any going-concern loss-absorption features. For Upper Tier 2 notes and preference shares, their ratings are three and five notches, respectively, below the banks' VRs, reflecting the presence of subordination and going-concern loss-absorption mechanisms. The ratings of these securities are sensitive to changes in the VRs. Rating Sensitivities - Subsidiaries' Ratings The ratings of DBSHK and DBS Taiwan reflect Fitch's view of an extremely high probability of support from their parent, DBS, if needed. This reflects the core importance of these subsidiaries to DBS's pan-Asia franchise, DBS's full control/ownership and a high level of integration between DBS and the subsidiaries. The ratings also take into account DBS's strong ability to extend extraordinary support on a timely basis. Changes to DBS's ratings or its willingness to extend extraordinary support would affect the ratings of DBSHK and DBS Taiwan. The list of rating actions is as follows: DBS - Long-Term IDR affirmed at 'AA-'; Outlook Stable - Short-Term IDR affirmed at 'F1+' - Viability Rating affirmed at 'aa-' - Support Rating affirmed '1' - Support Rating Floor affirmed at 'A-' - Senior unsecured notes affirmed at 'AA-' - Commercial paper programme affirmed at 'F1+' - Subordinated Lower Tier 2 notes affirmed at 'A+' - Preference shares affirmed at 'BBB' DBSHK - Long-Term IDR affirmed at 'AA-'; Outlook Stable - Short-Term IDR affirmed at 'F1+' - Support Rating affirmed '1' DBS Taiwan - Long-Term IDR assigned at 'AA-'; Outlook Stable - Short-Term IDR assigned at 'F1+' - Support Rating assigned at '1' - National Long-Term Rating affirmed at 'AAA(twn)'; Outlook Stable - National Short-Term Rating affirmed at 'F1+(twn)' OCBC - Long-Term IDR affirmed at 'AA-'; Outlook Stable - Short-Term IDR affirmed at 'F1+' - Viability Rating affirmed at 'aa-' - Support Rating affirmed '1' - Support Rating Floor affirmed at 'A-' - Senior unsecured notes affirmed at 'AA-' - Commercial paper programmes affirmed at 'F1+' - Subordinated Lower Tier 2 notes affirmed at 'A+' - Preference shares affirmed at 'BBB' UOB - Long-Term IDR affirmed at 'AA-'; Outlook Stable - Short-Term IDR affirmed at 'F1+' - Viability Rating affirmed at 'aa-' - Support Rating affirmed '1' - Support Rating Floor affirmed at 'A-' - Senior unsecured notes affirmed at 'AA-' - Subordinated Lower Tier 2 notes affirmed at 'A+' - Subordinated Upper Tier 2 notes affirmed at 'A-' - Preference shares affirmed at 'BBB' Contacts: Primary Analysts Alfred Chan (DBS, OCBC and UOB) Director +65 6796 7220 Fitch Ratings Singapore PTE Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Joyce Huang (DBSHK) Director +852 2263 9595 Fitch (Hong Kong) Limited 2801 Tower Two, Lippo Centre 89 Queensway Hong Kong SAR Sophia Chen, CFA, CPA (DBS Taiwan) Director +886 2 8175 7604 Fitch Ratings Limited, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa N. Rd., Taipei Secondary Analysts Ambreesh Srivastava (DBS, OCBC and UOB) Senior Director +65 6796 7218 Sabine Bauer (DBSHK) Senior Director +852 2263 9966 Cherry Huang, CFA (DBS Taiwan) Director +886 2 8175 7603 Committee Chairperson Mark Young Managing Director +65 6796 7229 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(twn)' for National ratings in Taiwan. Specific letter grades are not therefore internationally comparable. Additional information is available at www.fitchratings.com.">www.fitchratings.com. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 15 August 2012; "Assessing and Rating Bank Subordinated and Hybrid Securities", dated 5 December 2012; "Rating FI Subsidiaries and Holding Companies", dated 10 August 2012; and "National Ratings Criteria", dated 19 January 2011, are available at www.fitchratings.com.">www.fitchratings.com. Applicable Criteria and Related Research Global Financial Institutions Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181 Assessing and Rating Bank Subordinated and Hybrid Securities http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542 Rating FI Subsidiaries and Holding Companies http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209 National Ratings Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=788754 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.