Sovereign bail-out support slipping for three HK lenders
Three Hong Kong banks could get left high and dry by creditors and regulators in the event of another financial crisis, said Fitch Ratings.
Three Hong Kong banks could get left high and dry by creditors and regulators in the event of another financial crisis, said Fitch Ratings.
The agency downgraded the support ratings of Chong Hing Bank, Dah Sing Bank and Shanghai Commercial Bank from 3 to 5, saying that their parent firms may not have the financial firepower to rescue them at a time when appetite for public bailouts is dwindling. Fitch also said BOC Hong Kong would have little sovereign support but a high likelihood of its parent rescuing it.
Regulators in Hong Kong have shown their intention for senior creditors to take losses during a crisis before banks received sovereign support, Fitch said.
"Although most Hong Kong banks … remain mainly deposit-funded and therefore have limited bail-in debt outstanding, we believe that senior creditors can no longer rely on receiving full extraordinary sovereign support," Fitch said in a report. "Hong Kong's framework for resolving banks, which will allow for the bail-in of senior creditors, is expected to become effective in 2016."
Fitch revised BOCHK's support rating floor from A- to "no floor", signalling that the bank could receive little to no support from regulators in Hong Kong during a banking crisis.
The rating agency also noted that BOCHK would likely enjoy sufficient support from state-controlled Bank of China, which owns 66 per cent of BOCHK.
"Our view that the parent's propensity to support is very strong is based on BOCHK's integral role to BOC - characterised through brand identity, strategic importance, strong profit contributions and complementary international operations," the Fitch report said.
