Huge withdrawal of cash will severely hurt Bank of East Asia's (BEA) capital liquidity and cripple its loan growth, and the bank might face tough times to attract deposits, analysts say.

Hundreds of customers flocked to BEA branches yesterday seeking to clear their deposits out after the bank was hit by unconfirmed rumors questioning its stability.

"We don't know at the moment what exactly happened, but the incident is terrible news for any bank, regardless of whether it's just a rumor or otherwise," said Leo Wah, a banking analyst at Moody's Asia Pacific Ltd.

The bank will face "critical" time today as more information that might have triggered the incident will be revealed, he added.

Castor Pang, a strategist at Sun Hung Kai Financial, said it is a big loss for BEA, but given its significant status among local banks, the city's monetary authority will come to its rescue if necessary.

"If they were malicious rumors, I would feel very sorry for the bank," Pang said.

The rumors were the latest headache for Hong Kong's fifth-largest lender by assets, which last week had to revise down its first-half earnings by almost 12 percent after losses hidden by one of its traders were uncovered.

"We have downgraded rating to 'negative watch' on the bank last week, which has nothing to do with what had happened today," said Ryan Tsang, a senior director of corporate ratings at Standard & Poor's Rating Services.

The agency thinks BEA's risk management is questionable but it has no plan at the moment to further downgrade the bank's rating.

On Sept 19, Moody's toned down its outlook for BEA's credit rating to "negative" from "stable".

"The negative outlook reflects Moody's further concerns over BEA's internal control and risk management after the bank reported unauthorized manipulation of the valuation of certain equity derivatives in the first half of 2008," Moody's said.

Analysts think BEA is a bit vulnerable because its first-half results were relatively weak compared to its peers'. It booked about HK$93 million of trading losses after correcting the value of the equity derivatives, it said on Sept 18.

(HK Edition 09/25/2008 page2)