Fitch Rates Dah Sing Bank's Subordinated Notes Final 'BBB'

Dah Sing Banking

10/01/2019 06:44

(The following statement was released by the rating agency)


Fitch Ratings-Hong Kong-January 10: 

Fitch Ratings has assigned Hong Kong-based Dah Sing Bank, Limited's (DSB; 
BBB+/Stable/bbb+) USD225 million Basel III-compliant Tier 2 subordinated notes a 
final rating of 'BBB'.

The notes will be issued on 15 January 2019 under DSB's USD2 billion euro 
medium-term note programme. The notes will have maturity of 10 years and will be 
callable by DSB after five years and semi-annually thereafter. The notes will 
carry a fixed interest rate of 5% per annum up to the first call date and reset 
semi-annually thereafter, with the interest rate based on the five-year US 
Treasury rate plus 255bp. They will be issued to institutional investors and 
will be listed on the Hong Kong Stock Exchange.

The notes will qualify as Tier-2 capital as their terms include a point of 
non-viability that the authorities may trigger at their discretion. In addition, 
the Hong Kong resolution authorities can, through their statutory powers, 
override the notes' contractual terms if they consider it necessary to restore 
the bank's viability. The bank will use the proceeds from the new issuance to 
replace existing obligations that will become callable in January 2019.

The assignment of the final rating follows the receipt of the final documents 
conforming to information already received and is in line with the expected 
rating assigned on 7 January 2019.

Key Rating Drivers

Fitch rates the notes one notch below DSB's Viability Rating, which is the 
anchor rating for the notes. The one-notch difference reflects the notes' 
below-average recovery prospects relative to senior unsecured instruments, as 
well as their contractual loss-absorption feature that allows for a permanent 
write-down in full or in part. We expect that the authorities would step in at 
an early stage to contain potential losses; therefore we consider it possible 
that noteholders would lose only part of their investment.

We apply no additional notching for non-performance as the point of 
non-viability broadly coincides with what we express in the anchor rating.

DSB's ratings were affirmed on 8 May 2018, reflecting the bank's local 
franchise, its moderate risk appetite and adequate loss-absorption buffers. We 
expect DSB to maintain its steady growth strategy, with higher focus on personal 
lending and SMEs.

Rating Sensitivities

The rating on the notes is sensitive to any changes in DSB's Viability Rating, 
which in turn is sensitive to any change in its risk appetite, in particular, a 
change in China-related activities without maintaining stringent risk controls. 
A significant weakening of asset quality for its SME loan book could also 
trigger a rating downgrade.

Date of Relevant Committee

07-May-2018

Dah Sing Bank, Limited

----subordinated; Long Term Rating; New Rating; BBB

Contacts: 

Primary Rating Analyst

Savio Fan, 

Associate Director

+852 2263 9955

Fitch (Hong Kong) Limited

19/F Man Yee Building 60-68 Des Voeux Road Central

Hong Kong

Secondary Rating Analyst

Sabine Bauer, 

Senior Director

+852 2263 9966

Committee Chairperson

Ambreesh Srivastava, 

Senior Director

+65 6796 7218

 

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Bank Rating Criteria - Effective from 23 March 2018 to 22 June 2018 (pub. 23 Mar 
2018)

https://www.fitchratings.com/site/re/10023430

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/site/dodd-frank-disclosure/10058925

Solicitation Status 

https://www.fitchratings.com/site/pr/10058925#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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