The Asian Banker

Moody's affirms DBS Bank's ratings; revises outlook to stable
Aug 14, 2013

Singapore, August 7th 2013 - Moody's Investors Service has affirmed all the ratings of DBS Bank except for its subordinated debt ratings of Aa2, which were placed under review for downgrade in June 2013.

Moody's has also revised the outlook on all of DBS Bank's ratings to stable from negative.

These rating actions follow DBS Group Holdings' (DBSGH; unrated) decision to drop its offer to buy PT Bank Danamon Indonesia Tbk (D/ba2/positive) on 31 July 2013.

At the same time, Moody's has affirmed the deposit rating of DBS Bank (Hong Kong) and revised the rating outlook to stable from negative, owing to the linkage between the rating on the Hong Kong subsidiary's deposit rating and that of its Singapore parent through our incorporation of parental support assumptions. However, the outlook on DBS Bank (Hong Kong)'s bank financial strength rating (BFSR) remains negative due to idosyncratic credit factors associated to DBS Bank (Hong Kong) as a standalone entity. For details, please refer to the separate press release on DBS Bank (Hong Kong) published on the same date.

A list of ratings following today's actions can be found near the end of the press release.


"The withdrawal of DBS Group's offer for Bank Danamon has removed the uncertainty over a possible sudden change in the group's geographic and loan mix, and has eased the potential funding and capital pressures that DBS Bank could have faced," says Wee Siang Ng, a Moody's Vice President and Senior Analyst.

"Previously, we were concerned that the acquisition would prompt DBS Group to adopt an aggressive regional expansion strategy. Such a move could have substantially increased the group's exposure to asset quality risks and exposed DBS Bank indirectly to the risk of up-streaming capital. Our negative rating outlook for the bank highlighted these concerns," he adds.

The revision in rating outlook to stable places DBS Bank on par with the other two large Singapore banks, implying that there is no meaningful difference in their risk profiles.

There is little likelihood of DBS Bank's ratings be upgraded in the near term. The negative outlook for the Singapore banking system underscores the fact that DBS Bank, like its domestic peers, is facing the pressure of a potential shift in the cycle. Furthermore, at aa3 on a standalone basis, Singapore banks are already among the highest-rated banks globally.

Moody's would consider downgrading DBS Bank's ratings if it aggressively pursues a non-organic growth strategy, and/or if the bank's core equity Tier 1 ratio, under the fully-loaded Basel III rules, falls below 10.0% (11.3% as of 30 June 2013) owing to a sharp deterioration in asset quality or if its earnings turn volatile as a result of increased investments in the capital markets.

The affected ratings are:

- BFSR/BCA: B/aa3

- Local currency and foreign currency long-term bank deposits: Aa1

- Local currency and foreign currency short-term bank deposits: P-1

- Foreign currency commercial paper: P-1

- Foreign currency commercial paper program: (P)Aa1

- Foreign currency senior unsecured debt: Aa1

- Foreign currency senior unsecured medium-term note (MTN) program: (P)Aa1

- Basel III-compliant non-viability contingent capital securities global
MTN program: (P)A2

- Short-term MTN program: (P)P-1

- Local currency and foreign currency junior subordinated debt: A1 (hyb)

- Local currency preferred stock: A3 (hyb)

DBS Bank Ltd, London branch:

- Foreign currency commercial paper: P-1

- Foreign currency senior unsecured MTN program: (P)Aa1

- Foreign currency short-term MTN program: (P)P-1

DBS Capital Funding II Corp:

- Foreign currency BACKED foreign currency preferred stock: A3 (hyb)

DBS Bank Ltd, HK branch:

- Foreign currency commercial paper: P-1

- Foreign currency senior unsecured MTN program: (P)Aa1

- Local currency senior unsecured debt: Aa1

- Short-term MTN program: (P)P-1

The following ratings are unaffected by today's rating action:

- Local and foreign currency subordinated debt: Aa2

On 3 June 2013, Moody's placed its (P)Aa2 rating on DBS Bank's subordinated program and Aa2 rating on subordinated debt on review for downgrade because of an update, on 31 May 2013, to a methodology that has changed the way Moody's assesses systemic support for bank subordinated debt.

The methodology update and rating action were driven by the conclusion that government policy to deal with ailing banks has evolved globally in a way that makes support for bank subordinated debt less probable than before.

Moody's expects to conclude the review within the next few months. The subordinated debt rating could decline by up to two notches if Moody's concludes that there is no longer any probability that it will benefit from systemic support.


Re-disseminated by The Asian Banker

Categories: Results & Ratings
Keywords: Moody's

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