The ratings on Bank of East Asia Ltd. (BEA) reflect the bank's solid domestic franchise in Hong Kong and its rapid but careful expansion in China. They also reflect the bank's improved asset quality, satisfactory liquidity, and strong capitalization. Moderating factors include a narrow net interest margin and moderate pricing in a competitive operating environment. The bank faces higher risk factors as a result of its expanding China loan book. BEA has a solid and defendable franchise in Hong Kong, where it is the fifth-largest domestically incorporated bank, but is small compared with the dominant banks in the system. Although the bank is diversifying, its operations are still concentrated in the territory, which accounts for 67% of its total advances.
