S&P reads plus signs in review of banks
US credit rating agency Standard & Poor's has assigned public information (PI) ratings to nine Hong Kong financial institutions, effectively giving a vote of confidence in the territory's banking sector.
PI ratings are based on publicly disclosed information and do not refer to S&P's assessments of the companies rated. The ratings run from AAApi, the highest, to Dpi, the lowest.
S&P has assigned Api ratings to Bank of America (Asia) and Hang Seng Bank, while assigning BBBpi ratings to Bank of East Asia, Chekiang First Bank, Dah Sing Bank, Nanyang Commercial Bank, Po Sang Bank, Shanghai Commercial Bank and Wing Lung Bank.
The S&P report said Hong Kong banks faced 'intensified competition, traditionally volatile property prices and liquidity pressures as a result of possible event risk'.
However, 'the sound financial profile of many local banks, the stable economy and the established role of the Hong Kong Monetary Authority will enable the system to manage the risks'.
Commonwealth Bank of Australia treasurer Andrew Fung said the new PI ratings would have no significant effect on capital market practitioners' understanding of the nine institutions.
He said that most of the nine banks already had access to international capital markets and had been given ratings from Moody's Investors Service or other agencies.
He also said Po Sang Bank and Nanyang Commercial Bank were members of the Bank of China (BOC) Group and seldom raised funds on their own but through the BOC Group.
In assigning the ratings, Standard & Poors' observed that the territory's banking sector was highly concentrated in Hongkong Bank and the BOC Group, which together control 75 per cent of the market.
The rating agency said that despite this environment, smaller banks still could compete profitably in most business areas, especially residential mortgage lending, but warned that as competition intensified smaller banks would need to diversify revenue sources.
The agency said it was concerned about the overall concentration on property lending by the territory's banks, although 'underwriting criteria had been tightened and speculation in the property sector had been reduced by changes in government policies'.
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