The rating on The Bank of East Asia, Limited (BEA) reflects the bank's solid domestic franchise in Hong Kong, sound asset quality, and satisfactory liquidity. It also reflects the bank's geographically diversified income sources and adequate capitalization. Moderating factors include growing latent credit risks, pressured core earnings, and a vulnerable performance due to investments in structured financial instruments. BEA has a solid and defendable franchise in Hong Kong, where it is the fifth-largest domestically incorporated bank, but is small relative to the dominant banks in the system. BEA has been the forerunner among midsize banks in the territory in terms of diversifying into overseas markets. Its Hong Kong book accounted for only 50.8% of its total advances at the end
