Hong Kong, May 24, 2017 -- Moody's Investors Service has today taken rating actions on 5 Chinese
commercial banks, 3 policy banks, and 5 bank owned leasing
companies.
Moody's has affirmed the A1 long-term deposit ratings of
Bank of China Limited (BOC), China Construction Bank Corporation
(CCB), and Industrial and Commercial Bank of China Limited (ICBC).
Moody's has also downgraded Agricultural Bank of China Limited's
(ABC) long-term deposit rating to A2 from A1, and put Bank
of Communications Co., Ltd (BoCom)'s A2 long-term
and P-1 short-term deposit ratings on review for downgrade.
At the same time, Moody's has affirmed BOC, CCB,
and ICBC's baseline credit assessment (BCA) and Adjusted BCA at
baa2, and ABC's BCA and Adjusted BCA at baa3, and put
BoCom's BCA and Adjusted BCA of baa3 on review for downgrade.
Moody's has also downgraded the long-term issuer ratings
and/or senior unsecured debt ratings of three Chinese policy banks,
Agricultural Development Bank of China (ADBC), China Development
Bank Corporation (CDB), and the Export-Import Bank of China
(CEXIM), to A1 from Aa3.
Moody's has also affirmed the A1 long-term issuer ratings
of CCB Financial Leasing Corporation Ltd (CCB Leasing) and ICBC Financial
Leasing Co., Ltd (ICBC Leasing), put the A2 long-term
issuer rating of Bank of Communications Financial Leasing (BoCom Leasing)
and the A3 long-term issuer rating of BoCom Leasing Development
HK Co. Ltd. (BLDHK) on review for downgrade, and downgraded
the long-term issuer rating of China Development Bank Financial
Leasing (CDB Leasing) to A1 from Aa3.
The outlook on all entities except for BoCom, BoCom Leasing and
BLDHK, which are on review for downgrade, have been revised
to stable from negative.
Moody's has today also downgraded China's sovereign rating
to A1 from Aa3 and changed outlook to stable from negative. For
full details on China's sovereign rating action, please refer
to the webpage: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_366139.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_195681
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_195681
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
Principal Methodologies
Local Market Analyst
Lead Analyst
National Scale Ratings
BCA affirmation for BOC, CCB, ICBC, ABC
The affirmation of BOC, CCB and ICBC's BCA at baa2 and ABC's
BCA at baa3 takes into account the potential risks in these banks'
lending books, their restrained loan growth relative to their rated
Chinese peers, stable capitalization, and the modest decline
in their profitability. The affirmation also takes into consideration
their relatively strong funding and liquidity profiles compared with smaller
peers.
The four banks are among the largest banks in China, and have strong
relationships with the largest Chinese corporate borrowers. The
largest Chinese corporate enterprises, including most of the central
government-owned enterprises, tend to have stronger standalone
financial profiles and are more likely to benefit from government support
relative to the mid-sized corporates in China, which lowers
their likelihood of default.
The four banks also reported relatively modest balance sheet growth in
2016 when compared with smaller banks. Their more conservative
growth should entail lower credit risks going forward. Moreover,
these four banks have been less active in structuring, distributing
and investing in wealth management products than other rated banks in
China. They are therefore less vulnerable to the spillover effects
from the ongoing tightening of regulatory controls on the shadow banking
sector than smaller banks.
Even though asset quality pressure will likely persist for these banks,
the recent stabilization of economic growth and improvement in commodity
sectors should reduce the formation of new problem loans over the next
12-18 months. That said, over the medium and longer
term, the Chinese economy will continue to face the challenges associated
with the combination of rising economy-wide leverage and slower
growth, which will in turn weigh on these banks' credit profiles.
The four banks have also maintained stable capitalization, with
tangible common equity / risk weighted assets ratio. The banks'
reasonably good capitalization and relatively good pre-provision
profitability should help them absorb the expected formation of distressed
loans.
Although narrowing margins and increased provisioning expenses have led
to a modest decline in profitability for these banks, we expect
the declining trend in these banks' profitability to remain manageable,
with no material negative impact on their credit profiles.
Although liquidity conditions in China have tightened amid a steady increase
in interbank rates, these four banks still have some of the strongest
liquidity profiles among rated Chinese banks. They have extensive
branch networks and are net lenders in the interbank market. They
are likely to benefit from "flight to quality" during periods
of liquidity stress.
Review for downgrade for BoCom's BCA and adjusted BCA
The review for downgrade for BoCom's BCA and adjusted BCA will focus
on assessing the impact of the rise in its reliance on wholesale funds
in recent years and decline in profitability.
Moody's note that while ABC, BOC, CCB, and ICBC
have continued to enjoy stable funding profiles, BoCom has relied
to a growing extent on wholesale funds in recent years to support its
operation, which Moody's considers to be a less stable funding
source than retail deposits.
The bank's greater reliance on wholesale funding also subjects its
profitability to greater downward pressure as wholesale funding costs
rise.
Support consideration for ABC, BOC, BoCom, CCB,
and ICBC
The sovereign rating action has not had an impact on the credit ratings
of BOC, CCB, and ICBC. We continue to factor in very
high level of government support in their ratings, resulting in
four notches of government support uplift in their deposit and senior
unsecured ratings. The downgrade of China's sovereign rating
to A1 from Aa3 has not affected the notching under our Joint Default Assessment
(JDA) framework for these three banks.
We also incorporate very high support assumption in ABC's deposit
rating. However, the five notches of support uplift previously
incorporated into ABC's ratings are no longer consistent with our
JDA framework, given the one-notch downgrade of China's
sovereign rating. As a result, ABC's long-term
deposit and long-term senior unsecured debt ratings were downgraded
to A2 from A1.
The stable outlooks for the big four banks reflect Moody's view
that the central government's willingness to support them will remain
broadly unchanged over the next 12-18 months, and that these
banks' BCAs will remain appropriately positioned at their current
levels during this period.
We continue to incorporate a very high support assumption and four notches
of government support uplift in BoCom's deposit rating. The
review for downgrade of BoCom's deposit ratings reflects the review
for downgrade of its BCA and adjusted BCA.
Downgrade of policy bank ratings; Outlook revised to stable
The downgrade of the three policy banks is mainly driven by their very
close linkages with the sovereign's credit quality. These
banks are currently rated using the credit substitution approach,
and their ratings are on par with the sovereign rating. The Chinese
government fully owns the three banks, either directly through the
Ministry of Finance or indirectly through its investment platform companies.
The State Council has assigned the three banks development / policy finance
roles of supporting economic growth and structural adjustments,
implying a prolonged alignment of interests and objectives between the
three banks and the government. The three banks function under
the control and directives of the government, with their operations
and finances inextricably intertwined with those of the government.
The stable outlooks for the policy banks reflect Moody's view that
the central government's ability and willingness to support them
will remain broadly unchanged over the next 12-18 months.
Affirmation of CCB Leasing and ICBC Leasing, review for downgrade
for BoCom Leasing and BLDHK, and downgrade of CDB Leasing
The affirmation of CCB Leasing and ICBC Leasing's A1 long-term
issuer ratings factors in these companies' ba3 standalone credit strength
and eight notches of uplift based on the expected implicit and explicit
support from their parents.
The review for downgrade for BoCom Leasing's A2 long-term
issuer rating and BLDHK's A3 long-term issuer rating follows
similar rating action on BoCom.
The downgrade of CDB Leasing's long-term issuer rating to
A1 from Aa3 follows similar rating actions on its parent CDB. Following
the rating action, the company benefits from eight notches of support
uplift from its standalone assessment of ba3.
ICBC Leasing, CCB Leasing, BoCom Leasing and CDB Leasing's
long-term issuer ratings are in line with the deposit/senior unsecured
ratings of their respective parents, and are based on their strategic
importance to and linkages with their parents. These entities are
either fully or majority-owned by their respective parent banks.
The parent banks of these firms have provided considerable support in
the form of business referrals, risk management systems, information
platforms, capital injections and funding access. Moody's
believes that the amount of extraordinary parental support the leasing
firms would receive under a situation of stress is very high. The
affirmation, review for downgrade, and/or downgrade of the
parents' ratings have led to similar rating actions on their respective
leasing subsidiaries.
The one-notch differential between the A2 issuer rating of BoCom
Leasing and the A3 keepwell-supported issuer rating of BLDHK reflects
(1) the absence of a direct guarantee, and (2) the potential risks
associated with obtaining approval to remit funds, given China's
capital regulations.
ABC, BOC, CCB, ICBC: WHAT COULD MOVE THE RATINGS
UP/DOWN
The ratings of ABC, BOC, CCB, and ICBC incorporate a
very high level of government support. The long-term deposit
ratings of BOC, CCB, and ICBC are already at the sovereign
level of A1 and are unlikely to rise. The deposit rating of ABC
could be upgraded if there is an upgrade of its BCA or a sovereign upgrade.
These banks' BCAs could experience upward pressure if (1) the growth
in leverage in the Chinese economy is arrested and shadow banking risks
are contained, thereby reducing latent risks for the banking sector
; (2) asset quality, as measured by new problem loan formation,
and profitability, as measured by return on assets, remain
resilient; and (3) capital strengthens, with improvement in
the common equity Tier 1 ratio.
The ratings could be downgraded if China's sovereign rating is downgraded
or if Moody's assesses that the China government's ability or willingness
to support the banks has weakened. The BCAs of ABC, BOC,
CCB, and ICBC could experience downward pressure if (1) the operating
environment weakens materially, for example if China's economic
growth moderates, or corporate financial leverage continues to rise;
(2) asset quality and profitability weaken materially; and (3) capital
weakens, with deterioration in the common equity Tier 1 ratio.
BOCOM: WHAT COULD MOVE THE RATINGS UP/DOWN
In view of the review for downgrade of the ratings for BoCom, Moody's
does not expect any upward ratings pressure.
The bank's BCA and deposit ratings could be downgraded if Moody's
review results in (1) no expectation of a material improvement in its
reliance on market funds despite a more stringent regulatory environment;
or (2)expectations that its profitability, as measured by return
on assets, will continue to weaken..
An affirmation of its BCA and deposit ratings could be considered if Moody's
concludes that : (1) its liquidity profile improves, such
that its reliance on market funds decreases; and (2) its profitability
will remain resilient despite increasing market funding costs.
ADBC, CDB, CEXIM: WHAT COULD MOVE THE RATINGS UP/DOWN
The ratings of the three policy banks are in line with China's sovereign
rating. Their ratings will be upgraded if (1) China's sovereign
rating is upgraded; and (2) support to these banks remains a government
priority despite ongoing reforms in some policy banks.
The ratings could be downgraded if (1) China's sovereign rating is downgraded;
(2) changes in their policy role diminish their strategic importance to
the government; or (3) the government substantially reduces its ownership
in the banks.
CCB LEASING, CDB LEASING AND ICBC LEASING: WHAT COULD MOVE
THE RATINGS UP/DOWN
The ratings of these three leasing companies are aligned with those of
their parents. Their issuer ratings are unlikely to rise unless
there is an upgrade on their parents' ratings.
Moody's would consider raising the leasing companies' standalone
credit strength if they maintain good asset quality, reduce the
tenor mismatch between their assets and liabilities, improve their
profitability, and strengthen their capital ratios relative to their
managed assets.
Any negative rating actions on the parents of the leasing companies could
lead to negative rating actions on the leasing subsidiaries. The
ratings of the leasing companies could also be downgraded if Moody's observes
(1) weakening liquidity and capital support from the parents; (2)
declining business relationships and management control of the parent
bank; or (3) significant reduction of the parents' shareholding
in their leasing subsidiaries.
The leasing companies' standalone credit strength could be downgraded
in the event of deteriorating asset quality and rising credit costs,
weakening liquidity and funding profiles, and/or weakening capital
levels.
BOCOM LEASING AND BLDHK: WHAT COULD MOVE THE RATINGS UP/DOWN
Since BoCom's ratings are under review for downgrade, rating
actions on BoCom would therefore likely result in rating actions on the
leasing subsidiaries.
The ratings of BoCom Leasing could also be downgraded if the support from
the parent bank weakens.
BLDHK's rating could be downgraded if there is a material adverse change
in capital account regulations that limits BoCom Leasing's ability to
provide timely cross-border support to BLDHK to meet payment obligations.
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_195681
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Releasing Office
• Person Approving the Credit Rating
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Sonny Hsu, CFA
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Minyan Liu
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
