TEXT-S&P summary: DBS Bank (Hong Kong) Ltd.

(The following statement was released by the rating agency)

July 26 -

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Summary analysis -- DBS Bank (Hong Kong) Ltd. --------------------- 26-Jul-2012

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CREDIT RATING: AA-/Stable/A-1+ Country: Hong Kong

Primary SIC: Commercial banks,

nec

Mult. CUSIP6: 237009

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Credit Rating History:

Local currency Foreign currency

19-Jul-2005 AA-/A-1+ AA-/A-1+

10-Jul-2005 AA-/A-1+ A+/A-1

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Ratings Score Snapshot

Issuer Credit Rating AA-/Stable/A-1+

SACP a

Anchor a-

Business Position Adequate (0)

Capital and Earnings Strong (+1)

Risk Position Adequate (0)

Funding and Liquidity Average

and Adequate (0)

Support +2

GRE Support 0

Group Support +2

Sovereign Support 0

Additional Factors 0

Major Rating Factors

Strengths:

-- Status as a "core" subsidiary of DBS Group

-- Strong capitalization

-- Strong track record of containing credit losses

Weaknesses:

-- Recent rapid growth in credit risk exposures

-- Loan-to-deposit ratio exceeding domestic industry average

Outlook

The stable outlook on DBSHK reflects the outlook on its parent.

An upgrade of DBS could trigger a similar action on DBSHK. We could lower the

rating on DBSHK if we downgrade DBS or if we no longer consider DBSHK to be a

core subsidiary of DBS group. A change in SACP of DBSHK is not likely to have

a direct impact on the issuer credit rating on DBSHK, unless it is significant

enough to change the parent group's credit profile.

Rationale

The rating on DBS Bank (Hong Kong) Ltd. (DBSHK) reflects the bank's status as

a core subsidiary of DBS Bank Ltd. (AA-/Stable/A-1+; axAAA/--/axA-1+). We

expect the banking sector regulator in Singapore to allow DBS to provide

timely and strong support to its Hong Kong subsidiary.

We assess DBSHK's stand-alone credit profile (SACP) as 'a' based on the anchor

SACP for banks operating predominantly in Hong Kong. We also consider DBSHK's

"adequate" business position, "strong" capital and earnings, "adequate" risk

position, "average" funding, and "adequate" liquidity, as our criteria define

those terms.

The anchor SACP for a bank operating predominantly in Hong Kong is 'a-'. This

draws on our Banking Industry Country Risk Assessment methodology and our view

that Hong Kong has an economic risk score of '3' and an industry risk score of

'1'.

Our economic risk assessment of Hong Kong reflects its wealthy, highly

competitive, and resilient economy. Substantial potential imbalances have

built up in the economy because of volatile housing prices and rapid credit

growth over the past few years. The robust financial profile of Hong Kong's

household and corporate sector, the strong payment culture and effective legal

framework, and major banks' underwriting standards mitigate the credit risks

in the economy.

Our industry risk assessment benefits from Hong Kong's strong institutional

framework and effective banking regulations and supervision. The sector's

funding is well supported by the customer deposit base. Banks' risk appetite

is generally restrained, and we do not note any market distortions in Hong

Kong.

DBSHK's seventh rank in terms of total assets among banks incorporated in Hong

Kong supports its business position. However, the bank's market shares in

loans and deposits are below 5%. While DBS' corporate banking business is

booked outside DBSHK, the latter focuses on serving retail customers and small

and midsize entities. DBSHK has a fairly well established franchise in

segments such as credit cards and trade finance. Leveraging on DBS group's

franchise and regional connectivity, DBSHK has been growing its offshore

Chinese renminbi business, which enhances its earnings. The bank's revenue

stability and customer stickiness are in line with industry average, in our

view.

We expect DBSHK's risk-adjusted capital ratio to stay above 10% over the next

two years. We anticipate that the bank's loan growth will slow down

substantially in 2012 and 2013, as compared with the rapid growth in 2011. We

also believe the bank's profit generation and retention will partially

mitigate the negative impact of continuous loan growth on capitalization.

These factors support our assessment of DBSHK's capital and earnings.

Our risk position assessment for DBSHK reflects our expectation that the

bank's strong growth momentum, driven by a sharp rise in trade bills

discounting in 2011, will cool down substantially amid reduced demand and

challenging economic conditions in 2012. We also expect DBSHK to contain its

potential credit losses through its prudent underwriting standards and

sophisticated risk management capabilities.

We consider DBSHK' funding to be "average" and its liquidity as "adequate".

The bank's loan-to-deposit ratio is higher than the domestic industry average.

However, a significant proportion of its loan book is trade bills or trade

finance, which are typically short-term. The bank's retail network is also

stronger than that of many of its smaller peers in Hong Kong, in our view.

Reliance on external wholesale funding is also limited, as the bulk of DBSHK's

interbank borrowings are from its parent, which would be more flexible to the

bank.

The issuer credit rating on DBSHK is equated to DBS's group credit profile of

'aa-'. DBSHK operates in key business lines and is integral to the group's

regional aspiration. The bank represents a significant part of the group's

balance sheet and is a significant profit contributor. DBSHK also shares the

group's brand and leverages the broad recognition of it.

We consider DBSHK to have "moderate" systemic importance in Hong Kong,

implying a "moderately high" likelihood of extraordinary support from the

government of Hong Kong (AAA/Stable/A-1+; cnAAA/cnA-1+). This potential

support does not affect the current rating, as the impact is less than the

parent group support.

Related Criteria And Research

-- Hong Kong And Singapore Banks' Credit Quality Can Withstand A Mild

Recession In Europe, May 17, 2012

-- Banking Industry Country Risk Assessment: Hong Kong, April 12, 2012

-- Research Update: DBS Bank Ltd. And DBS Bank (Hong Kong) Ltd.

'AA-/A-1+' Ratings Affirmed On Parent's Announced Acquisition Of Danamon,

April 3, 2012

-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011

-- Banking Industry Country Risk Assessment Methodology And Assumptions,

Nov. 9, 2011

-- Group Rating Methodology And Assumptions, Nov. 9, 2011

-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011

Source: http://news.yahoo.com/text-p-summary-dbs-bank-hong-kong-ltd-090624094--sector.html

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