Fitch Ratings has assigned Singapore-based Oversea-Chinese Banking Corporation Limited's (OCBC, AA-/Stable) SGD500 million perpetual capital securities a rating of 'BBB+'.

The notes will be issued under OCBC's USD30 billion global medium-term note programme on 8 June 2022.

Key Rating Drivers

The securities are rated four notches below OCBC's 'aa-' Viability Rating, comprising two notches for loss severity and two notches for non-performance risk, in accordance with Fitch's Bank Rating Criteria.

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 additional Tier 1 securities of OCBC will rank ahead of claims of only OCBC's ordinary shareholders, and 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 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 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 downgrade of OCBC's Viability Rating will result in a downgrade of the securities.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

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

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 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

Date of Relevant Committee

07 April 2021

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

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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