Bank of East Asia Ltd. (The)

The stable outlook on BEA reflects our expectation that the group will continue to focus on managing credit risk through reduced exposure to property-related loans and strengthening underwriting standards and risk control over the coming two years. We also expect the group to maintain adequate capital buffers on controlled growth appetite, despite a modest decline in profitability in the same period. The stable outlook also reflects our assessment that the group will retain its moderate systemic importance in Hong Kong and that the Hong Kong government will provide extraordinary support to BEA as needed, at least for the coming two years. We could lower our ratings on BEA if the group's credit loss ratios rise and loan quality deteriorates further

...We expect Bank of East Asia Ltd. (BEA) to continue to tighten its control of risk and reduce its exposure to commercial real estate (CRE) amid subdued property markets in mainland China and Hong Kong. BEA is focusing on high-quality borrowers with strong collateral and diversified business streams and has been building up additional collateral or writing down loans to highly leveraged borrowers. These efforts will help contain a further worsening of BEA's asset quality and credit loss ratios for the coming two years. BEA steadily reduced loans to property development and investments to 26% out of total as of the end of June 2024, from about 35% as of the end of 2021, mainly driven by a sharp reduction in such loans in mainland China. We view the credit quality of BEA's Hong Kong CRE loans as more resilient than that of its mainland China CRE loans. This is despite Hong Kong's CRE sector being under rising stress from high office vacancy rates, low rental yields, and high funding costs....

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