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DBS Bank (Hong Kong) Limited -- Moody's affirms DBS Bank (Hong Kong) Limited's Aa3 deposit ratings; outlook stable

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Rating Action: Moody's affirms DBS Bank (Hong Kong) Limited's Aa3 deposit ratings; outlook stableGlobal Credit Research - 09 Dec 2021Hong Kong, December 09, 2021 -- Moody's Investors Service has affirmed DBS Bank (Hong Kong) Limited's (DBS Bank (Hong Kong)) long-term deposit ratings at Aa3.Moody's has also affirmed the bank's Baseline Credit Assessment (BCA) at a3, Adjusted BCA at a1, and affirmed the bank's Counterparty Risk Ratings (CRR) at Aa2/P-1 and Counterparty Risk (CR) Assessment at Aa2(cr)/P-1(cr).The outlook on DBS Bank (Hong Kong) and its deposit ratings remains stable. The stable outlook reflects Moody's expectation that the bank will retain its strong liquidity and capitalization over the next 12-18 months, while its parent's willingness and capacity to support the bank will remain broadly unchanged.A list of all affected ratings can be found at the end of the press release.RATINGS RATIONALEThe affirmation of the bank's a3 BCA reflects the bank's stable financial profile, including its good asset quality, strong capitalization, improved profitability, and strong funding and liquidity profile.Moody's expects DBS Bank (Hong Kong) to maintain stable asset quality over the next 12-18 months, amid improving economic conditions in Hong Kong SAR, China (Aa3 stable). The bank's asset quality metrics have improved, with an impaired loan ratio of 1.2% as of the end of June 2021, which is still weaker than the Hong Kong banking system's average. DBS Bank (Hong Kong) maintains sizable exposures to small- and medium-size enterprises, which strain the bank's asset quality. Having said that, the bank's prudent risk management and increasing proportion of lending to large corporates mitigate the asset risk.DBS Bank (Hong Kong) has maintained strong capitalization, with a Common Equity Tier 1 ratio of 16.9% as of the end of September 2021. The bank's capitalization is supported by its good internal capital generation capability. In addition, the bank's profitability has improved in the first half of 2021, as rising fee and commission income and low credit costs offset the decline in net interest income.DBS Bank (Hong Kong) has a strong funding profile with a low reliance on market funds. The bank is mostly deposit-funded, with customer deposits accounting for around 90% of its total liabilities. The bank also continues to have a high proportion of current and savings account deposits. DBS Bank (Hong Kong) also maintains strong liquidity, with a liquidity coverage ratio of 150.7% for the third quarter of 2021.DBS Bank (Hong Kong)'s Adjusted BCA incorporates two notches of uplift for affiliate support, based on Moody's assumption of a very high level of support from its parent bank, DBS Bank Ltd. (Aa1 stable, a1). DBS Bank (Hong Kong) is of strategic importance to DBS Group Holdings Ltd (Aa2 stable) and DBS Bank. DBS Bank (Hong Kong) is wholly-owned by DBS Bank and plays an important role in the group's greater China strategy by collaborating with affiliates in the region, as well as with DBS Bank, to provide cross-border services to customers. Moody's expects that parental capital and liquidity support is highly likely in the event of need.Moody's applies an Advanced Loss Given Failure (LGF) analysis to analyze DBS Bank (Hong Kong)'s consolidated liabilities because the bank is incorporated in Hong Kong, which Moody's considers to be under an operational resolution regime. Moody's LGF analysis indicates a low loss given failure for deposits, resulting in a one-notch uplift from the bank's Adjusted BCA because of the loss absorption provided by subordinated debts and preferred shares.The bank's long-term CR Assessments are positioned at Aa2(cr), two notches above its Adjusted BCA under Moody's Advanced LGF analysis, reflecting the bank's substantial cushion against default provided to obligations represented by CR Assessments, given the subordination of the bank's subordinated debts, preferred shares, junior deposits and senior unsecured debts.The bank's long-term CRRs are positioned at Aa2, two notches above its Adjusted BCA under Moody's Advanced LGF analysis, reflecting Moody's view of a very low loss-given-failure, given the subordination of the bank's subordinated debts, preferred shares, junior deposits and senior unsecured debts.Moody's does not incorporate government support in DBS Bank (Hong Kong)'s ratings and CR Assessments given the bank's small deposit market share in Hong Kong.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSDBS Bank (Hong Kong)'s BCA could be upgraded if the bank improves its capitalization, with tangible common equity/risk weighted assets (TCE/RWA) above 18% on a sustained basis; or if it improves its asset quality with impaired loan/gross loans below 1% on a sustained basis.DBS Bank (Hong Kong)'s deposit rating could be upgraded if DBS Bank's capacity to support the bank increases, leading to an upgrade to DBS Bank (Hong Kong)'s Adjusted BCA; or if the subordination of DBS Bank (Hong Kong)'s junior liabilities increases, leading to a lower loss given failure for deposits.DBS Bank (Hong Kong)'s BCA could be downgraded if its capitalization weakens, with its TCE/RWA falling below 14% or its asset quality deteriorated, with impaired loans/gross loans above 3%; and its reliance on wholesale funding increases, with market funds/tangible banking assets above 10% and its liquidity deteriorates, with liquid banking assets/tangible banking assets falling below 40% on a sustained basis.DBS Bank (Hong Kong)'s deposit ratings could be downgraded if DBS Bank's willingness or capacity to support the bank weakens, leading to the downgrade of DBS Bank (Hong Kong)'s Adjusted BCA; or the subordination of DBS Bank (Hong Kong)'s junior liabilities decreases, leading to a higher loss given failure for deposits.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in Hong Kong SAR, China, DBS Bank (Hong Kong) Limited reported total assets of HKD440.1 billion as of 30 June 2021.LIST OF AFFECTED RATINGS AND ASSESSMENTSAffirmations:..Issuer: DBS Bank (Hong Kong) Limited.... Adjusted Baseline Credit Assessment, Affirmed a1.... Baseline Credit Assessment, Affirmed a3.... Long-term Counterparty Risk Assessment, Affirmed Aa2(cr).... Short-term Counterparty Risk Assessment, Affirmed P-1(cr).... Long-term Foreign and Local Currency Counterparty Risk Ratings, Affirmed Aa2.... Short-term Foreign and Local Currency Counterparty Risk Ratings, Affirmed P-1.... Long-term Foreign and Local Currency Bank Deposit Ratings, Affirmed Aa3, Outlook Remains Stable.... Short-term Foreign and Local Currency Bank Deposit Ratings, Affirmed P-1Outlook Action:..Issuer: DBS Bank (Hong Kong) Limited....Outlook, Remains StableREGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating. Huan Helen Zhang Analyst Financial Institutions Group Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Sophia Lee, CFA Associate Managing Director Financial Institutions Group JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). 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