OCBC Wing Hang's capitalisation, profits to offset real estate risks: Moody's

The bank’s exposure to real estate markets may affect asset quality.

Hong Kong’s OCBC Wing Hang Bank, formerly Wing Hang Bank, will maintain a strong financial position in the next 12 to 18 months, according to Moody’s report.

The bank’s robust capitalisation and profitability help offset asset risk from its significant exposure to Hong Kong's real estate market and its buyers from mainland China.

The bank's deposits are well-protected by its junior capital instruments and residual equity, resulting in low expected losses in case of failure. Additionally, the bank's strategic significance to its parent company, OCBC, will remain unchanged.

OCBC Wing Hang Bank's significant exposure to Hong Kong's real estate market and mainland China will pose challenges to its asset quality, although the risk will remain manageable, Moody's anticipates.

The impaired loan ratio of the bank increased from 0.4% at the end of 2021 to 1.4% at the end of 2022, primarily due to the weakened asset quality of a single borrower in Hong Kong's commercial real estate sector. 

On the other hand, most of the bank's loans in Hong Kong for property development and investment are backed by collateral, and the bank has maintained a conservative loan-to-value ratio, mitigating the concentration risk in the sector.

Regarding lending in mainland China, it accounts for 23% of the bank's gross loans as of the end of 2022, mainly facilitated through its onshore subsidiary, OCBC Wing Hang Bank. 

ALSO READ: OCBC unveils digital account opening for foreigners moving to SG

The asset risk associated with these loans is tempered by the fact that the majority of customers are financially sound large companies with a strong relationship with the parent bank, OCBC. 

Furthermore, most of the lending in mainland China is secured by collateral and guarantees.

In the next 12-18 months, the bank is expected to maintain strong profitability whilst wider net interest margins will help offset higher credit costs. 

The bank's net interest margins will be supported by loans repricing at higher yields, while deposit costs will remain relatively stable compared to 2022. 

The reopening of borders with mainland China will also boost the bank's insurance products and wealth management sales, contributing to increased fee and commission income. 

It is worth noting that while the bank's lending is mostly secured by guarantees and collaterals, credit costs may remain elevated due to the bank's low impaired loan coverage ratio.

Additionally, the credit ratings agency forecasts the bank will maintain adequate funding and sound liquidity. OCBC Wing Hang has a moderate reliance on market funds.