Fitch Ratings has assigned Singapore-based Oversea-Chinese Banking Corporation Limited's (OCBC, AA-/Stable) SGD450 million perpetual capital securities a rating of 'BBB+'.

The notes are issued under OCBC's USD30 billion global medium-term note programme.

Key Rating Drivers

These Additional Tier 1 (AT1) capital securities are rated four notches below OCBC's 'aa-' Viability Rating, comprising two notches for loss severity and two notches for non-performance risk, according to Fitch's Bank Rating Criteria and in line with other Fitch-rated AT1 securities issued by OCBC.

The loss severity is high in light of the securities' deep subordination. In the event of any winding-up proceeding, holders of these securities and all other AT1 securities of OCBC will rank ahead of claims of only OCBC's ordinary shareholders, and will rank below the bank's senior creditors, including covered bondholders, depositors and holders of the bank's Tier 2 capital securities, in priority of claims.

The securities are also subject to write-off at a point of non-viability as determined by the Monetary Authority of Singapore (MAS). The amount to be written off will be as much as is required for the bank to cease to be non-viable, as determined by OCBC in consultation with MAS, or as directed by MAS, up to the full principal and dividend amount on the securities. The full principal and dividend amount must be written off ahead of any write-off of OCBC's Basel III Tier 2 securities.

Non-performance risk arises from the unrestricted discretion that OCBC and MAS have in cancelling any periodic distribution on the proposed securities.

OCBC will also not be obliged to make any distribution if it is prevented from doing so under Singapore banking regulations or other MAS requirements. Distribution on the proposed securities would otherwise be made semi-annually at a fixed rate, based on the prevailing principal amount, subject to reset on the applicable reset dates.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A change in OCBC's Viability Rating will affect the rating on the proposed securities, as it is the anchor rating from which the securities are notched down.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

The rating on the proposed securities will be upgraded if OCBC's Viability Rating is upgraded. However, positive rating momentum is limited as the rating is already near the top of Fitch's global bank rating universe.

Date of Relevant Committee

30 May 2023

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.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

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