The Bank of East Asia Limited

Established franchise in Hong Kong. Adequate capital. Moderately high likelihood of government support due to moderate systemic importance in Hong Kong. Exposure to rising economic risk in Hong Kong and China. Loan concentration in the property sector. Below-average core profitability. The negative outlook on The Bank of East Asia Limited (BEA) primarily reflects growing economic risks in the banking sector in both China and Hong Kong. This also takes into account the likelihood that the bank may increase its credit risk exposure in China faster than in Hong Kong, contrary to our base-case expectation of a fairly stable geographic loan mix. We could lower the ratings if BEA's stand-alone credit profile (SACP) deteriorates. This could happen if: (1) the economic

...Outlook: Negative The negative outlook on The Bank of East Asia Limited (BEA) primarily reflects growing economic risks in the banking sector in both China and Hong Kong. This also takes into account the likelihood that the bank may increase its credit risk exposure in China faster than in Hong Kong, contrary to our base-case expectation of a fairly stable geographic loan mix. We could lower the ratings if BEA's stand-alone credit profile (SACP) deteriorates. This could happen if: (1) the economic risks that the group faces heighten and the group continues to increase its loan exposure to China, such that we lower its anchor to '###' from '###+'; (2) the group's asset quality weakens considerably; or (3) its capitalization deteriorates substantially, such that we expect the risk-adjusted capital (RAC) ratio to fall below 7% for a prolonged period. We could also lower the rating on BEA if extraordinary support from the Hong Kong government diminishes. We could lower our assessment of the...

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