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Moody's assigns Aa1 to OCBC's GBP senior unsecured notes

July 14, 2014



Moody's Investors Service has today assigned its Aa1 foreign currency debt rating to the GBP235 million floating rate senior unsecured notes due in July 2015 issued by Oversea-Chinese Banking Corp Ltd (OCBC, deposits Aa1 review for downgrade, BFSR B review for downgrade / BCA aa3).

The notes were issued under OCBC's USD10 billion Global Medium Term Note

(GMTN) program and will be listed on the Singapore Exchange Securities Trading Limited.

The notes are on review for downgrade, in line with the review for downgrade on OCBC's long-term ratings.

RATINGS RATIONALE

The Aa1 senior unsecured debt rating is based on OCBC's aa3 baseline credit assessment (BCA) and the very high likelihood of systemic support in the event of a crisis.

OCBC's BCA of aa3 is among the highest assigned to any financial institution globally. This high BCA is driven by the bank's traditional and dominant franchises in banking and insurance in both Singapore and Malaysia; its strong level of capitalization and healthy asset quality; sound access to liquidity; and steady earnings.

By definition, Moody's "aa" BCAs imply very low volatility in results and are therefore sensitive to even small increases in risk, highlighting some of the challenges the ratings may face over time. In particular, many of OCBC's key markets, such as Singapore and Malaysia, have experienced low interest rates for a prolonged period, as well as high loan growth and asset inflation. In this context, we view OCBC's asset quality and profitability as vulnerable to a downturn in the credit cycle.

We believe there is a very high likelihood of systemic support for OCBC if needed, given its significant market share of 17% in SGD deposits and 13% in SGD loans in Singapore's banking system in 2013. Therefore, the

Aa1 senior floating rate note rating includes a two-notch uplift from OCBC's aa3 standalone credit assessment.

However, the rating is under review for downgrade following OCBC's announcement that it has made a general offer to acquire 100% of Wing Hang Bank's shares (WHB, A2 review for upgrade, C+ negative/a2).

The review highlights potential execution risk associated with the financing of such a large acquisition. While OCBC will fund the offer consideration through a combination of internal cash and committed lines, we understand that OCBC plans to raise capital for the transaction through a combination of debt and equity. The success of the new capital raising, as well as the composition of the targeted long-term capital structure, is important for OCBC if it is to maintain capitalization on par with similarly rated peers.


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Source: EMBIN (Emerging Markets Business Information News)


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