Bank Contingent Capital & Coronavirus Contagion

Bank Credit Weekly: Insight 2020 Update on Contingent Capital – CCB (Asia) Curve Value

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

<p style="text-align: justify;"><a href="https://www.smartkarma.com/entities/united-overseas-bank-ltd" target="_blank" data-smartkarma-citation="entities:113:1" rel="noopener">United Overseas Bank (UOB)</a> has its cake and eats it too by presenting regulatory loss allowance reserves (RLAR) as both regulatory capital and as loan loss allowances. That is, one of these two ratios are overstated.  </p><p style="text-align: justify;">In our view, UOB’s Q1 nonperforming loan (NPL) coverage figures are, at best, simply overstated, or, at worst, intentionally misleading due to the inclusion of RLAR in the coverage figures.  As we see it, RLAR is not available to absorb losses as a going-concern. RLAR is gone-concern capital. With this in mind, we adjust UOB’s reported NPL coverage figures to derive the real trend. This trend is not credit positive.</p>

United Overseas Bank (UOB) has its cake and eats it too by presenting regulatory loss allowance reserves (RLAR) as both regulatory capital and as loan loss allowances. That is, one of these two ratios are overstated.  In our view, UOB’s Q1 nonperforming loan (NPL) coverage figures are, at best, simply overstated, or, at worst, intentionally misleading due to the inclusion of RLAR in the coverage figures.  As we see it, RLAR is not available to absorb losses as a going-concern. RLAR is gone-concern capital. With this in mind, we adjust UOB’s reported NPL coverage figures to derive the real trend. This trend is not credit positive.

UOB

United Overseas Bank and RLAR Cake