Ratings of Bank of Hawaii Corporation (BOH - Free Report) along with its banking subsidiary have been affirmed by Moody's Investors Service. Notably, the rating outlook on the group has been downgraded to negative from stable.
Bank of Hawaii's standalone baseline credit assessment (“BCA”) has been affirmed at a1. Long-term/short-term deposit ratings of Aa2/Prime-1 and a long-term issuer rating of A2 have also been reiterated. Also, the parent company has a senior unsecured medium-term note program rating of (P)A2.
Reasons for Ratings Affirmation
The BCA has been affirmed on account of the bank’s strong financial profile, supported by a leading market position in Hawaii and a conservative credit culture that has resulted in a record of strong credit quality.
Also, the ratings agency finds the liquidity position to be robust, with a large core deposit base, low refinancing risk, given the lesser dependency on confidence-sensitive market funding, and sizeable holdings of liquid resources.
Further, the company’s efforts to control credit costs and good operational efficiency resulted in strong and stable profitability. However, it faces a geographic concentration risk as it operates in one small economy, making the bank's risk profile more vulnerable to localized economic downturns.
BCA also incorporates Moody's expectation of better than peer capital resilience in stress scenarios. However, the impacts of the coronavirus outbreak on Hawaii and its tourism industry are likely to result in a more severe economic decline than the rest of the United States.
Reasons for Outlook Downgrade
Moody’s changed the company’s outlook to negative from stable on its assessment that the bank's asset quality, capitalization and profitability will be under increased pressure due to the contraction in the Hawaiian economy in 2020 as a result of the coronavirus pandemic.
Also, the ratings agency regards the coronavirus outbreak as a social risk under its environmental, social and governance framework, given the substantial implications for public health and safety.
Factors Leading to an Upgrade or Downgrade of Ratings
Owing to the negative rating outlook, upward movement is unlikely in the near term. The outlook could return to stable if the company’s asset quality and profitability show continued resilience to the economic effects of the coronavirus outbreak in the form of better than peer performance and if it maintains a stronger level of capitalization relative to its lower-rated peers.
However, a decrease in profitability because of elevated credit costs, a decline in capitalization or a dip in liquid resources as a percentage of tangible banking assets would also lead to downward rating pressure. A downgrade of the BCA and the ratings could also result from expansion initiatives, which would not complement Bank of Hawaii's island-based regional banking franchise and that could, in turn, result in the worsening of asset quality.
Shares of the company have lost 27.7% over the past six months compared with the 6.8% decline of the industry it belongs to.
Currently, Bank of Hawaii carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In August, Moody’s Investors Service downgraded the outlook for U.S. Bancorp (USB - Free Report) due to its assessment that the lender’s balance sheet strength and profitability gap with its US peers could narrow due to the coronavirus pandemic.
Whereas, the ratings agency upgraded the outlook for TCF Financial (TCF - Free Report) , reflecting Moody's view that the integration with Chemical Financial has been well-executed despite the large size of the transaction.
Outlook for SLM Corporation (SLM - Free Report) has been kept as stable.
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