Moody's reviews impact of bank link-up
Moody's Investors Service will review for possible upgrade the Baa1 long term and P-2 short term foreign currency deposit ratings of the three affiliates of Bank of China after Monday's launch of Bank of China (Hong Kong).
It follows the merger of Bank of China's SAR unit, the local branches of seven banks incorporated in the mainland, as well as two locally incorporated banks - Hua Chiao Commercial Bank and Po Sang Bank. Nanyang Commercial Bank and Chiyu Banking will remain subsidiaries of the newly formed conglomerate.
Bank of China is one of the mainland's big four state-owned banks. It is also the nation's largest foreign exchange bank.
Moody's said the banking group's various financial-strength ratings, which range from C minus to C, were also under review. The ratings may be either raised or lowered, depending on the degree to which the banks' balance sheets were restructured in the merger.
Ratings are being withdrawn for the eight banks, which were merged with Po Sang Bank to form Bank of China (Hong Kong).
Moody's said its review would focus primarily on two key factors.
The extent to which capital and loan loss reserves adequately covered the group's and each individual bank's lending and other business risks; and
The prospects for realising the full profit potential of its Hong Kong banking franchise - the SAR's No 2 in terms of assets.
Deposit ratings are on review for possible upgrade as Moody's considers whether the strength of the group and its status as an entity incorporated in Hong Kong and regulated by the Hong Kong Monetary Authority deserves a rating higher than that of its financially weaker mainland parent.
Moody's said the review would focus on financial fundamentals of the merged group and the extent its resources were vulnerable to appropriation by its parent.
