Fitch Ratings has affirmed
The Outlook on the Long-Term IDR is Stable. Fitch has also affirmed the rating on the bank's Tier 2 subordinated debt instrument at 'A-'.
Key Rating Drivers
Parental Support Underpins Ratings: UOBC's IDRs and Shareholder Support Rating (SSR) reflect the extremely high likelihood of extraordinary support from its parent,
Fitch revised the Outlook on UOB's Long-Term IDR from Negative to Stable and affirmed the ratings on the bank on
Strong Rating Linkage: The contribution of the
Record of Support: UOB has a history of providing ordinary support to UOBC, including customer referrals as well as other operational and system support. The group injected
Highly Integrated with Parent: Fitch views UOBC and UOB as highly integrated in terms of management, strategy, risk profile and business generation. The parent oversees UOBC's operations and key operational metrics, including funding and liquidity management as well as capital planning. Fitch expects UOBC to continue playing an integral role in channelling customer referrals and supporting cross-border opportunities for the group. This includes working closely with the parent to provide financial services to mainland Chinese entities seeking to invest in south-east
No VR Assigned: Fitch has not assigned a Viability Rating (VR) to UOBC. The bank's intrinsic strength is subject to operational and financial support from its parent and it lacks a meaningful standalone franchise.
Debt Rating Affirmed: Fitch has affirmed UOBC's Tier 2 subordinated debt instruments two notches below the Long-Term IDR to reflect the high loss severity relative to senior unsecured instruments. We take into consideration that the support-driven IDR reflects the risk of UOBC triggering a non-viability event. This is because parental support from UOB can and will be used to neutralise non-performance risk of UOBC's subordinated bonds, in Fitch's view.
Short-Term IDR: UOBC's Short-Term IDR of 'F1+' is the higher of two possible options given the support-driven Long-Term IDR. We believe the parent's propensity to provide support is more certain in the near term, and that there are no significant impediments to support.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
IDR AND SSR
A downgrade of UOB's VR to below
The bank's Long-Term IDR and SSR will also come under pressure if there is any weakening in Fitch's assessment of UOB's propensity to support UOBC. For example, this may arise from reduced management and operational integration, as well as a decline in shareholding that could lead to a significant reduction in the subsidiary's strategic importance to the parent. However, Fitch does not consider any changes in support propensity to be likely in the medium term.
SUBORDINATED DEBT
Any changes to the rating on UOBC's Tier 2 capital bonds will be directly linked to changes in UOBC's Long-Term IDR. A downgrade of UOBC's Long-Term IDR would lead to negative rating action on UOBC's Tier 2 capital bonds.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
IDR AND SSR
There is no rating upside for UOBC's SSR and Long-Term IDR unless
SUBORDINATED DEBT
An upgrade of UOBC's Long-Term IDR would lead to positive rating action on its Tier 2 capital bonds.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
UOBC's IDRs are linked to the VR of the parent, UOB.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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