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Fitch: Wing Hang Bank and Chekiang First Bank ratings affirmed

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Fitch Ratings, the international rating agency, has today affirmed the ratings of Wing Hang Bank ("WHB") at Long-term 'A-' (A minus) and Short-term 'F2, following the announcement of its planned acquisition of Chekiang First Bank ("CFB"). Its Individual and Support ratings have also been affirmed at 'B/C' and '3', respectively. The Outlook remains Stable. At the same time, the agency has affirmed the ratings of CFB at Long-term 'A-' (A minus), Short-term 'F2', Individual 'B/C' and Support '3'. The Outlook remains Stable. The acquisition is expected to be completed by September 2003.

The acquisition price of HKD4.8 billion is 1.22 times CFB's book value at end-2002. WHB will fund this acquisition by issuing HKD2bn of lower tier two subordinated debt and cash reserves. With an estimated goodwill of approximately HKD800 million, the total weighted risk assets ratio for WHB after the merger should reduce to about 14% from 16.5%, with a Tier 1 ratio of about 10%. The table below highlights the banks' key ratios before the merger.

At end-2002 (HKD m) Total Assets Total Deposits Total Equity NPL ratio ROA CAR   Wing Hang Bank 57,108 47,142 6,378 2.6% 1.2% 16.5%   Chekiang First Bank 27,757 23,243 3,941 2.8% 0.8% 26.6%

Based on the banks' figures at end-2002, the merged entity will have a market share of 2.3% of loans and 2.1% of deposits in the local banking system. With 46 branches in Hong Kong after the integration, WHB will become the sixth largest banking group in Hong Kong by assets.

Fully owned by Mizuho Financial Group, CFB is a mid-sized commercial bank that focuses on small- to medium-sized corporates and individuals. The bank's asset quality and capital adequacy have been consistently better than its local rivals, although its profitability has been declining since 2000 amid the difficult banking operating environment in Hong Kong.

At end-2002, WHB and CFB's loan to deposit ratios were about 70% and 58%, and cost to income ratios were 32% and 55%, respectively. Given CFB's sound asset quality, liquid balance sheet and less efficient operation, WHB would be able to achieve revenue synergies easily from the merger through cross-selling and a better asset mix. It can also achieve cost synergies by integrating both banks' IT and back office operations.

Although Hong Kong's economic growth remains slow and credit demand is sluggish, the acquisition will give WHB the opportunity to enhance its competitiveness and eventually become one of the more viable players.

--www.theasianbanker.com (August 8, 2003)--

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