(Yicai Global) Sept. 22 -- After cutting China’s sovereign debt rating, Standar& Poor’s Financial Service LLC (S&P) yesterday lowered the credit rating of three foreign banks operating in China as they could not wall themselves off the effect of a possible sovereign debt default in the country, the international credit rating agency claimed.
These three foreign banks are DBS Bank (China) Limited, Hang Seng Bank (China) Limited [HKG:0011] and HSBC Bank (China) Co. Their long-term credit ratings were lowered from AA- to A+, while the short-term credit ratings lowered from A-1+ to A-.
If China suffers sovereign debt crisis, these three banks would be affected, S&P said. The downgrading of China’s sovereign rating by S&P yesterday is the result of a long-time and prudent credit growth, which increases China’s economic and financial risks, and to some extent impairs China’s financial stability, S&P claimed. China’s ministry of finance called it “wrong decision.”
As the three banks are all core subsidiaries of their parent company, Standard & Poor's (S&P) will take into consideration the government’s external support for their parent company to make sure that the ratings of these three banks are consistent with that of their parent company. At present, the S&P ratings on the external support for these three banks are all higher than China’s sovereign credit rating, S&P said.
However, S&P still maintains steady expectations for the ratings of these three banks. Steady rating expectations reflect S&P’s steady expectation of China’s sovereign credit rating, S&P said. If these three banks mainly operate in China and China defaults on its sovereign debt, S&P holds that these three banks can hardly bear the stress test.
Annual reports show that in 2016, the Development Bank of Singapore (DBS) netted USD604 million revenue in Greater China excluding Hong Kong, accounting for 7.3 percent of its global business. Its net profit was USD15 million, making Greater China the only loss-making region for DBS. For Hang Seng Bank (HSB), in 2016, the revenue of its main business in the Chinese mainland was HKD2,09 billion, accounting for 4.75 percent of the global business revenue. Its pretax profit was HKD277 million (USD35.4 million), accounting for just 1.45 percent of the total.