OREANDA-NEWS. Fitch Ratings has assigned Shanghai-based United Overseas Bank (China) Ltd. (UOBC) a Long-Term Issuer Default Rating (IDR) of 'A+' and a Short-Term IDR of 'F1'. The Outlook is Stable. In addition, a Support Rating (SR) of '1' is also assigned.

UOBC is a wholly owned subsidiary of Singapore-based United Overseas Bank (UOB; AA-/Stable). Fitch classifies UOBC as a strategically important subsidiary of UOB, due to strong integration with the parent and its key role in the group's expansion strategy in Greater China. As such, there is an extremely high probability of support from the parent, if needed. The agency has not assigned Viability Ratings to UOBC as its intrinsic strength is subject to its operational and financial integration with the parent.

KEY RATING DRIVERS

UOBC plays an important role in UOB's strategy of strengthening its franchise in the Greater China region. Fitch believes Greater China is a strategically important market for UOB. The contribution of UOB's Greater China operations has increased steadily, and represented 13% of the group's loans at end-2014 and 8% of profits before tax in 2014, consistent with rising trade and investment flows between China and Southeast Asia. Fitch expects the profit contribution from Greater China to increase in the coming years.

Although UOBC's profit contribution to the group was less than 1% in 2014, it is active in referrals to the group. In particular, UOBC works closely with the group's Singapore and Hong Kong branches to provide financial services to Chinese corporates seeking to invest in Southeast Asia.

UOBC has operational autonomy to make its own credit decisions, but the parent has strong influence through representation on UOBC's board of directors and secondments of senior executives. As a result, UOBC and UOB are highly integrated in terms of strategy, risk appetite, and business generation; with the parent having oversight over UOBC's operations and key metrics, including measures of liquidity.

UOB has a history of providing ordinary support to UOBC, including customer referrals, as well as other operational and system support. The parent bank also provides the majority of UOBC's foreign-currency funding. UOB's ongoing commitment to UOBC is underlined by its investment in a new UOB-branded headquarters in Shanghai's financial district.

UOBC shares its parent's brand and has grown organically from a UOB branch, and a default by UOBC would constitute significant reputational risk to UOB that could undermine its franchise.

UOBC grew out of a representative office set up by UOB in 1984. It was among the first batch of foreign lenders in China to be locally incorporated in 2007, and has grown its presence to more than 10 branches and sub-branches in mainland China. The bank's net profit after tax was CNY132m (USD22m) in 2014 and total assets were CNY49bn (USD8bn) at end-2014.