Sign in Subscribe
China

Standard & Poor's Affirms Bank of China Rating Despite Hong Kong Reorganization

Strategic Insights

— 1 min read

Standard & Poor's recently affirmed the double-'B'-plus long-term foreign currency counterparty rating on the Bank of China, despite the bank's plan to reorganize its Hong Kong operations and those of its sister banks into a single main entity and two subsidiaries. The reorganization aims to improve cost and marketing efficiencies, but the rating remains constrained by the bank's high level of nonperforming loans in mainland China. The agency continues to incorporate a degree of implicit Chinese government support, with a stable outlook on the rating.

Key Takeaways:

  • The Bank of China's reorganization in Hong Kong will likely involve incorporating its merged operations as a separate local entity, which will improve transparency and bring the new entity under the direct supervision of the Hong Kong Monetary Authority (HKMA).
  • The Bank of China group's operations in Hong Kong and Macau contribute over half of consolidated pretax profit, despite accounting for only over a quarter of group assets.
  • The bank's Hong Kong operations are currently overseen by both the Chinese authorities and the HKMA, which will change under the reorganization.
  • The reorganization will merge the Bank of China's existing Hong Kong branch with two locally incorporated sister banks and the Hong Kong operations of seven other sister banks.
  • The Bank of China group in Hong Kong had proforma total assets of HK$845 billion (US$110 billion), total gross loans of HK$353 billion, and deposits of HK$640 billion at Dec. 31, 1999.
  • The reorganization aims to improve the transparency and efficiency of the bank's operations, but the rating remains constrained by the bank's high level of nonperforming loans.
  • The agency continues to incorporate a degree of implicit Chinese government support into the rating.

Statistics:

  • Bank of China group's proforma total assets in Hong Kong: $845 billion (HK$)
  • Total gross loans in Hong Kong at Dec. 31, 1999: $353 billion (HK$)
  • Deposits in Hong Kong at Dec. 31, 1999: $640 billion (HK$)
  • Percentage of group assets in Hong Kong: 24%
  • Percentage of consolidated pretax profit contributed by Hong Kong operations: 51%

Sources:

  • Standard & Poor's (no date available)

Read more