Hong Kong, November 07, 2022 -- Moody's Investors Service ("Moody's") has affirmed the A1 long-term deposit rating of Bank of China Limited (BOC). Moody's has also affirmed the bank's baseline credit assessment (BCA) and adjusted BCA of baa1.
The rating outlook remains stable, reflecting Moody's view that the willingness and ability of the Government of China (A1 stable) to support BOC will remain unchanged over the next 12-18 months; and the bank's asset quality, capitalization and profitability will remain stable during this period.
A full list of affected ratings and assessment is at the end of this press release, identifying each affected issuer.
RATINGS RATIONALE
The affirmation of BOC's ratings with a stable outlook reflects the resilience of the bank's financial fundamentals amid a challenging operating environment in China and abroad. While the bank faces cyclical pressure on its asset quality, capitalization, and profitability because of the impact from the slower economic growth, correction in the property market and disruptions from the lingering pandemic in China, Moody's expects these financial metrics to remain largely stable in the next 12-18 months as the bank adapts to the structural adjustment of the global economy by optimizing existing loan portfolio, adhering to stringent underwriting standards, while benefiting from the diversification of overseas franchise.
BOC's baa1 BCA reflects the bank's stable asset quality and profitability benefiting from diversification of a global franchise, solid funding and liquidity and moderate capitalization.
New formation of nonperforming loans (NPLs) remains a risk to BOC's asset quality. However, Moody's does not expect a significant deterioration in BOC's asset quality over the next 12-18 months because of the strong buffers the bank has built up. Loan loss reserves covered 183.3% of the bank's NPLs as of 30 June 2022. The bank's NPL ratio rose one basis point to 1.34% as of 30 June 2022 from six months ago. BOC is the only Chinese bank with significant operations outside mainland China, with diversification benefits supporting its credit profile. NPL ratio outside mainland China was 0.80% as of 30 June 2022, with the bank's key overseas subsidiary Bank of China (Hong Kong) Limited (Aa3 stable) reporting 0.50% NPL ratio.
Moody's expects BOC's tangible common equity capital ratio to remain moderate and above 11.0% over the next 12-18 months. The Financial Stability Board has identified the bank as a global systemically important bank, with a required Core Tier-1 capital buffer of 1.5%. The bank has already satisfied the higher capital requirement. BOC's capital ratios have been weaker than those of its major Chinese banking peers. The bank's strategy of growth in retail banking facilitated by digitalization and geographic diversification will make its asset portfolio somewhat less capital intensive.
BOC's profitability — measured by net income/tangible assets — is likely to stabilize at around the 2021 level of 0.81% over the next 12-18 months. The bank's net interest margin (NIM) is likely to remain stable next year, underpinning net interest income which accounted for around 70% of total revenues. BOC's NIM over the first half of 2022 improved by one basis point from a year ago because loan yields improved by two basis points due to rising interest rates overseas. Credit cost is likely to stay elevated given the risk of new formation of NPLs although the bank's buffer of loan loss reserves will mitigate volatility of profitability. BOC is the only Chinese bank with significant profit contributions from outside mainland China, which supports its earnings stability.
Moody's expects BOC to continue to hold ample liquidity with its liquid banking assets at a level above 35.0% of tangible banking assets, more than covering its market funds. Customer deposits are the bank's dominant funding source, accounting for 76.3% of total liabilities as of 30 June 2022.
BOC's ratings are based on a Moderate+ Macro Profile derived from a weighted average of the banking system Macro Profiles of mainland China (Moderate+), Hong Kong SAR, China (Strong), Taiwan, China (Strong) and worldwide (Strong-). BOC's BCA is baa1 and Adjusted BCA, which incorporates no affiliate support, is the same as its BCA. China does not have an operational resolution regime for banks. Therefore, Moody's applies a basic Loss Given Failure approach in rating BOC's debt securities.
Moody's assumes a very high probability of support from the Government of China in times of need given BOC's systemic importance, as indicated by its market share of the banking sector's total loans and deposits; the government's majority stake, including a 64.6% ownership in the bank through the sovereign wealth fund, Central Huijin Investment Ltd., as of 30 June 2022; and the significant market impact and reputational damage to the government should the bank fail. As a result, ratings of deposits, counterparty risk rating and counterparty risk assessment are uplifted to A1, A1, and A1(cr), respectively.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
BOC's long-term deposit rating is at the same level as the issuer rating of the Government of China, after factoring in a very high probability of government support. Hence, there could be upward pressure on the rating should the capacity of the Government of China to support the bank, as reflected in its issuer rating, strengthen.
Moody's could raise BOC's BCA if China's credit conditions improve with strong economic recovery supported by a less intensive credit growth such that Moody's could raise the bank's Macro Profile, and the bank's capitalization strengthens, with an improvement in its Core Tier 1 capital ratio consistently above 14.0% while its profitability is at around the current level of 0.8% for return on assets.
There could be downward pressure on BOC's long-term deposit rating should the willingness or capacity of the Government of China to support the bank weaken or if the bank's BCA is lowered.
Moody's could lower BOC's BCA if the operating environment weakens significantly, for example, if China's economic growth moderates further or macro leverage rises, and thus, exerting pressure on the bank's asset quality. Moody's could also lower BOC's BCA if the bank's capitalization weakens, with a deterioration in its Core Tier 1 capital ratio to consistently below 10.5-11.0%; and profitability, measured as return on assets, falls to consistently below 0.7%. In addition, the BCA could be lowered if the bank's operations become less geographically diversified, or the profitability of its overseas operations weakens significantly.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://ratings.moodys.com/api/rmc-documents/71997. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Bank of China Limited is a state-owned commercial bank, which accounted for 6.5% of the Chinese banking system's loans and 7.6% of deposits as of 30 June 2022. The bank is a global systemically important bank, as identified by the Financial Stability Board. Headquartered in Beijing, the bank reported total assets of RMB28.1 trillion and shareholder's equity of RMB2.3 trillion as of 30 June 2022.
The local market analyst for these ratings is Nicholas Zhu, +86 (10) 6319-6536.
LIST OF AFFECTED RATINGS/ASSESSMENTS
.. Issuer: Bank of China Limited
.... Adjusted Baseline Credit Assessment, Affirmed baa1
.... Baseline Credit Assessment, Affirmed baa1
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Long-Term Deposit Rating (Foreign Currency), Affirmed A1; Outlook, Remains Stable
.... Short-Term Deposit Rating (Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Local and Foreign Currency), Affirmed (P)A1
.... Pref. Stock Non-cumulative Preferred Stock (Foreign Currency), Affirmed Ba1 (hyb)
.... Subordinate Regular Bond/Debenture (Foreign Currency), Affirmed Baa2 (hyb)
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited Qatar Fin Centre Br.
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Local and Foreign Currency), Affirmed (P)A1
.... Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed A1; Outlook Remains Stable
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited, Abu Dhabi Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)A1
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited, Auckland Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Local and Foreign Currency), Affirmed (P)A1
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited, Frankfurt Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Commercial Paper (Local and Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Local and Foreign Currency), Affirmed (P)A1
.... Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed A1; Outlook Remains Stable
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited, Hong Kong Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Long-Term Deposit Note/CD Program (Local Currency), Affirmed (P)A1
.... Short-Term Deposit Note/CD Program (Local Currency), Affirmed (P)P-1
.... Commercial Paper (Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Local and Foreign Currency), Affirmed (P)A1
.... Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed A1; Outlook Remains Stable
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited, Hungarian Branch
.... Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed A1; Outlook Remains Stable
.. Issuer: Bank of China Limited, Johannesburg Branch
.... Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed A1; Outlook Remains Stable
.. Issuer: Bank of China Limited, London Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Long-Term Deposit Note/ CD Program (Foreign Currency), Affirmed (P)A1
.... Short-Term Deposit Note/ CD Program (Foreign Currency), Affirmed (P)P-1
.... Commercial Paper (Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Local Currency), Assigned (P)A1
.... Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)A1
.... Senior Unsecured Regular Bond/Debenture (Local and Foreign Currency), Affirmed A1; Outlook Remains Stable
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited, Luxembourg Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Local and Foreign Currency), Affirmed (P)A1
.... Senior Unsecured Regular Bond/Debenture (Local and Foreign Currency), Affirmed A1; Outlook Remains Stable
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited, Macau Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Local and Foreign Currency), Affirmed (P)A1
.... Senior Unsecured Regular Bond/Debenture (Local and Foreign Currency), Affirmed A1; Outlook Remains Stable
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited, New York Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)A1
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited, Paris Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Commercial Paper (Local and Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Local and Foreign Currency), Affirmed (P)A1
.... Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed A1; Outlook Remains Stable
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited, Singapore Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)A1
.... Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed A1; Outlook Remains Stable
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited, Sydney Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Commercial Paper (Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Local and Foreign Currency), Affirmed (P)A1
.... Senior Unsecured Regular Bond/Debenture (Local and Foreign Currency), Affirmed A1; Outlook Remains Stable
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited, Taipei Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)A1
.... Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed A1; Outlook Remains Stable
.... Outlook, Remains Stable
.. Issuer: Bank of China Limited, Tokyo Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Short-Term Deposit Note/CD Program (Foreign Currency), Affirmed P-1
.... Commercial Paper (Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Local and Foreign Currency), Affirmed (P)A1
.... Senior Unsecured Regular Bond/Debenture (Local Currency), Affirmed A1; Outlook Remains Stable
.... Outlook, Remains Stable
.. Issuer: Bank of China (Dubai) Branch
.... Long-Term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed A1
.... Short-Term Counterparty Risk Rating (Local and Foreign Currency), Affirmed P-1
.... Long-Term Deposit Note/CD Program (Foreign Currency), Affirmed (P)A1
.... Short-Term Deposit Note/CD Program (Foreign Currency), Affirmed (P)P-1
.... Commercial Paper (Foreign Currency), Affirmed P-1
.... Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)A1
.... Outlook, Remains Stable
.. Issuer: Bank of China (Luxembourg) S.A.
.... Backed Senior Unsecured Regular Bond/Debenture (Local Currency), Affirmed A1; Outlook Remains Stable
.... Outlook, Remains Stable
.. Issuer: Amipeace Limited
.... Backed Senior Unsecured Regular Bond/Debenture (Local Currency), Affirmed A1; Outlook Remains Stable
.... Outlook, Changed To Stable From No Outlook
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 issuer/deal page for the respective issuer on https://ratings.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 ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.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 issuer/deal page on https://ratings.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.
Sean Hung, 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
Chen Huang
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
