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Rating Action:

Moody's affirms A1/P-1 deposit rating of Bank of China Limited; outlook stable

 The document has been translated in other languages

17 Oct 2019

Hong Kong, October 17, 2019 -- Moody's Investors Service ("Moody's") has affirmed following ratings and assessment of Bank of China Limited (BOC):

• A1 with stable outlook for long-term foreign-currency deposits;

• P-1 for short-term foreign-currency deposits;

• A1/P-1 for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 for foreign-currency senior unsecured Medium Term Note (MTN) program;

• Baa2(hyb) for foreign-currency subordinated debt;

• Ba1(hyb) for local-currency preference stock (non-cumulative);

• baa1 Baseline Credit Assessment (BCA) and Adjusted BCA;

• A1(cr)/P-1(cr) for long-term/short-term Counterparty Risk Assessment.

Moody's has also assigned (P)A1 local-currency rating for BOC's senior unsecured MTN program.

The rating outlook is stable, reflecting Moody's view that (1) the willingness and ability of the Government of China (A1 stable) to support BOC will remain broadly unchanged over the next 12-18 months; and (2) BOC's standalone BCA will remain appropriately positioned at the current level during this period.

In addition, Moody's has affirmed A1 rating of long-term senior unsecured debts issued by BOC's overseas branches.

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 stability of the bank's financial profile. The bank's key financial metrics including for asset quality, capitalization and profitability have been steady in recent periods and Moody's expects these to be broadly maintained going forward. Moody's expectation is for the nonperforming loan ratio to be stable at a level similar to the 1.4% reported as of 30 June 2019. Tangible Common Equity capital ratio is likely to remain above 11.0% and profitability is likely to stay at a level similar to the 0.9% recorded in 2018.

The slower economic growth globally and structural adjustment of the Chinese economy are headwinds exerting pressure on bank performance. However, Moody's does not expect much deterioration in BOC's key credit metrics, partly because of the strong buffers the bank has built up. Loan loss reserves covered 177.5% of nonperforming loans as of 30 June 2019. The bank continues to hold ample liquidity, and its funding profile stays healthy, with customer deposits accounting for 76.8% of total liabilities as of 30 June 2019.

BOC's strategy envisages a continued focus on digitalization, growth of retail banking and the growing importance of non-banking subsidiaries such as securities, insurance and asset management. While this strategy involves some execution risk, Moody's expects the bank to become gradually more diversified and that its growth will be somewhat less capital intensive.

BOC's rating is based on a Moderate+ macro profile that is the weighted average of the macro profiles for China (Moderate+), Hong Kong (Strong) and Worldwide (Strong-), based on the bank's assets. The bank operates in China (74% of total assets as of 30 June 2019), Hong Kong (11%) and the rest of the world (15%). BOC leads Chinese banks in overseas operation.

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. Therefore, Moody's applies a basic Loss Given Failure approach in rating BOC's debt securities and assumes a very high level of support from the Chinese government in times of need. As a result, ratings of deposits, senior unsecured debts, counterparty risk rating and counterparty risk assessment are uplifted by three notches.

WHAT COULD MOVE THE RATING UP/DOWN

BOC's long-term deposit rating is at the same level as the government bond rating of China, after factoring in a very high level of government support. Hence, there could be upward pressure on BOC's long-term deposit rating should the Chinese government's capability to support the bank, as reflected in the government bond rating of China, strengthen.

BOC's BCA could experience upward pressure if (1) leverage in the Chinese economy is successfully contained such that Moody's considers upwardly revising China's macro profile; (2) its asset quality, as measured by the problem loan formation rate, improves; (3) its capital strengthens, with a meaningful and sustained improvement in its tangible common equity capital ratio; and (4) its profitability, as measured by the return on assets, improves.

There could be downward pressure on BOC's long-term deposit rating should the Chinese government's willingness or capability to support the bank weaken.

BOC's BCA could experience downward pressure if (1) the operating environment weakens materially (for example, if economic growth moderates further in markets where BOC operates, or corporate financial leverage continues to increase in China); (2) its asset quality and profitability weaken significantly; or (3) its capital weakens, with a deterioration in its tangible common equity capital ratio.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Bank of China Limited is a state-owned commercial bank headquartered in Beijing. The bank is a global systemically important bank, as identified by the Financial Stability Board. It reported total assets of RMB22.3 trillion and total equity of RMB1.9 trillion as of 30 June 2019.

The local market analyst for these ratings is Nicholas Zhu, +86 (106) 319-6536.

LIST OF AFFECTED RATINGS/ASSESSMENTS

BANK OF CHINA LIMITED

• baa1 affirmed for BCA and Adjusted BCA;

• A1(cr)/P-1(cr) affirmed for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 affirmed for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• A1 affirmed with stable outlook for long-term foreign-currency deposit;

• P-1 affirmed for short-term foreign-currency deposit;

• (P)A1 affirmed for foreign-currency senior unsecured MTN program;

• (P)A1 assigned for local-currency senior unsecured MTN program;

• Baa2(hyb) affirmed for foreign-currency subordinate debt;

• Ba1(hyb) affirmed for local-currency preference stock (non-cumulative);

• Outlook maintained at stable.

BANK OF CHINA LIMITED, ABU DHABI BRANCH

• A1(cr)/P-1(cr) assigned for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 assigned for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 affirmed for foreign-currency senior unsecured MTN program;

• Outlook maintained at stable.

BANK OF CHINA (DUBAI) BRANCH

• A1(cr)/P-1(cr) affirmed for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 affirmed for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 affirmed for foreign-currency senior unsecured MTN program;

• A1 affirmed with stable outlook for long-term foreign-currency senior unsecured debt;

• (P)A1/(P)P-1 affirmed for long-term/short-term foreign-currency deposit note/CD program;

• P-1 affirmed for foreign-currency commercial paper;

• Outlook maintained at stable.

BANK OF CHINA LIMITED, FRANKFURT BRANCH

• A1(cr)/P-1(cr) affirmed for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 affirmed for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 affirmed for local/foreign-currency senior unsecured MTN program;

• A1 affirmed with stable outlook for long-term local-currency senior unsecured debt;

• P-1 affirmed for local/foreign-currency commercial paper;

• Outlook maintained at stable.

BANK OF CHINA LIMITED, HONG KONG BRANCH

• A1(cr)/P-1(cr) affirmed for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 affirmed for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 affirmed for local/foreign-currency senior unsecured MTN program;

• A1 affirmed with stable outlook for long-term local/foreign-currency senior unsecured debt;

• (P)A1/(P)P-1 affirmed for long-term/short-term local-currency deposit note/CD program;

• P-1 affirmed for foreign-currency commercial paper;

• Outlook maintained at stable.

BANK OF CHINA LIMITED, HUNGARIAN BRANCH

• (P)A1 affirmed for foreign-currency senior unsecured MTN program;

• Outlook maintained at stable.

BANK OF CHINA LIMITED, JOHANNESBURG BRANCH

• (P)A1/(P)P-1 affirmed for long-term/short-term local-currency senior unsecured MTN program;

• (P)A1 assigned for foreign-currency senior unsecured MTN program;

• A1 affirmed with stable outlook for long-term foreign-currency senior unsecured debt;

• Outlook maintained at stable.

BANK OF CHINA LIMITED, LONDON BRANCH

• A1(cr)/P-1(cr) affirmed for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 affirmed for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 affirmed for foreign-currency senior unsecured MTN program;

• A1 affirmed with stable outlook for long-term foreign-currency senior unsecured debt;

• (P)A1/(P)P-1 affirmed for long-term/short-term foreign-currency deposit note/CD program;

• P-1 affirmed for foreign-currency commercial paper;

• Outlook maintained at stable.

BANK OF CHINA LIMITED, LUXEMBOURG BRANCH

• A1(cr)/P-1(cr) affirmed for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 affirmed for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 affirmed for local/foreign-currency senior unsecured MTN program;

• A1 affirmed with stable outlook for long-term local/foreign-currency senior unsecured debt;

• Outlook maintained at stable.

BANK OF CHINA LIMITED, MACAU BRANCH

• A1(cr)/P-1(cr) affirmed for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 affirmed for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 affirmed for local/foreign-currency senior unsecured MTN program;

• A1 affirmed with stable outlook for long-term local/foreign-currency senior unsecured debt;

• Outlook maintained at stable.

BANK OF CHINA LIMITED, NEW YORK BRANCH

• A1(cr)/P-1(cr) affirmed for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 affirmed for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 affirmed for local-currency senior unsecured MTN program;

• Outlook maintained at stable.

BANK OF CHINA LIMITED, PARIS BRANCH

• A1(cr)/P-1(cr) affirmed for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 affirmed for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 affirmed for foreign-currency senior unsecured MTN program;

• (P)A1 assigned for local-currency senior unsecured MTN program;

• A1 affirmed with stable outlook for long-term local/foreign-currency senior unsecured debt;

• Outlook maintained at stable.

BANK OF CHINA LIMITED, SINGAPORE BRANCH

• A1(cr)/P-1(cr) affirmed for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 affirmed for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 affirmed for foreign-currency senior unsecured MTN program;

• A1 affirmed with stable outlook for long-term foreign-currency senior unsecured debt;

• Outlook maintained at stable.

BANK OF CHINA LIMITED, SYDNEY BRANCH

• A1(cr)/P-1(cr) affirmed for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 affirmed for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 affirmed for local/foreign-currency senior unsecured MTN program;

• A1 affirmed with stable outlook for long-term local-currency senior unsecured debt;

• P-1 affirmed for foreign-currency commercial paper;

• Outlook maintained at stable.

BANK OF CHINA LIMITED, TAIPEI BRANCH

• A1(cr)/P-1(cr) affirmed for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 affirmed for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 affirmed for foreign-currency senior unsecured MTN program;

• A1 affirmed with stable outlook for long-term foreign-currency senior unsecured debt;

• Outlook maintained at stable.

BANK OF CHINA LIMITED, TOKYO BRANCH

• A1(cr)/P-1(cr) affirmed for long-term/short-term Counterparty Risk Assessment;

• A1/P-1 affirmed for long-term/short-term local/foreign-currency Counterparty Risk Rating;

• (P)A1 affirmed for local/foreign-currency senior unsecured MTN program;

• A1 affirmed with stable outlook for long-term local/foreign-currency senior unsecured debt;

• P-1 affirmed for short-term foreign-currency deposit note/CD program;

• P-1 affirmed for foreign-currency commercial paper;

• Outlook maintained at stable.

BANK OF CHINA (LUXEMBOURG) S.A.

• A1 affirmed with stable outlook for backed long-term local-currency senior unsecured debt;

• Outlook maintained at stable.

REGULATORY DISCLOSURES

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 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.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entities are participating and the rated entities or their agent(s) generally provide Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

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.

Ray Heung
Senior Vice President
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, CFA
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

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