Hong Kong, November 26, 2020 -- Moody's Investors Service ("Moody's") has affirmed
the long-term A1 bank deposit rating and (P)A1 senior unsecured
rating on the Medium Term Note (MTN) program 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 Chinese government's willingness and capacity to support
BOC will remain broadly unchanged over the next 12-18 months;
and BOC's asset quality, capital and profitability will remain
stable at the current level during this period.
In addition, Moody's has affirmed A1/P-1 rating of
long-term/short-term debts issued by BOC's overseas
branches and affiliates.
A full list of affected ratings and assessments 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 metrics to be
broadly maintained going forward. While the bank faces cyclical
pressure on its asset quality, capitalization and profitability
because of the impact from the coronavirus pandemic, the medium-term
outlook on these financial metrics will likely improve as China's
economy recovers.
The nonperforming loan ratio, adjusting for bad debt disposal,
is likely to stabilize. BOC's strategy envisages a continued
focus on digitalization, growth of retail banking and non-lending
products. While this strategy involves some execution risk in the
wake of the coronavirus pandemic, Moody's expects the bank to become
gradually more diversified in its loan mix with more retail loans mitigating
asset risks.
New formation of nonperforming loans caused by the slow economic growth
following the coronavirus pandemic and structural adjustment of the Chinese
economy remains a risk to BOC's asset quality while the bank has
largely dealt with the aftermath of previous credit expansion after the
Global Financial Crisis in 2008. Credit cost will likely remain
at the recent level in next 12-18 months.
Moody's does not expect significant deterioration in BOC's asset quality
also because of the strong buffers the bank has built up. Loan
loss reserves covered 177.5% of nonperforming loans as of
30 September 2020 which provides a cushion for future deterioration of
asset quality.
Tangible Common Equity capital ratio is likely to remain above 11.0%
because the faster growth of risk-weighted assets in the first
three quarters of 2020 is likely to decline to a level similar to the
growth of tangible common equity in next 12-18 months, as
the Chinese economy continues the gradual recovery from the coronavirus
pandemic. BOC's moderate capitalization is weaker than its
major Chinese bank peers, although the bank's strategy of
growth of retail banking facilitated by digitalization and geographical
diversification will make its asset portfolio somewhat less capital intensive.
Moody's expects that BOC's return on assets is likely to be
around 0.9% as reported in the first three quarters of 2020
on an annualized basis. Operating profit has been edging downward
in recent years because of elevated credit cost in dealing with lingering
asset risks from previous credit cycles. The expected stabilization
of the bank's asset quality is likely to stabilize its credit cost
hence its profitability.
BOC is the only Chinese bank with significant profit contributions from
outside mainland China. Moody's views this diversification
benefit supports BOC's credit profile as well as the bank's
earnings stability.
BOC continues to hold ample liquidity, which is one of its key credit
strengths, with its liquid banking assets / tangible banking assets
at a level above 35.0%, more than covering its market
funds/tangible banking assets which is likely to stay below 15.0%.
Customer deposits are the bank's dominant funding source, accounting
for 76.9% of total liabilities as of 30 September 2020.
Moody's rates BOC based on the bank's Moderate+ macro
profile, a weighted average of the macro profiles of mainland China
(Moderate+); Hong Kong (Strong); and worldwide (Strong-).
The bank diversifies its operations in mainland China (74% of total
assets as of 30 June 2020); Hong Kong (11%); and the
rest of the world (15%).
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 to A1.
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 senior
unsecured debt rating of the Government of China, after factoring
in a very high level of government support. Hence, there
could be upward pressure on the rating should the Chinese government's
capacity to support the bank, as reflected in the senior unsecured
debt rating of the Government of China, strengthen.
Moody's could upgrade BOC's BCA if China's credit conditions
improve with strong economic recovery supported by a less intensive credit
growth, and the bank's capitalization strengthens, with an
improvement in its Core Tier 1 capital ratio consistently above 14.0%
while its profitability maintained at around the current level.
There could be downward pressure on BOC's long-term deposit rating
should the Chinese government's willingness or capacity to support
the bank weaken or if the bank's BCA is downgraded.
Moody's could downgrade BOC's BCA if the operating environment weakens
significantly, for example, if China's economic growth
moderates further or corporate financial leverage continues to increase.
Moody's could also downgrade BOC's BCA if the bank's capitalization
weakens, with a deterioration in its Core Tier 1 capital ratio to
consistently below 10.5% to 11.0%; and
profitability, as measured by net income/tangible banking asserts,
reduces, which could be a result of much weaker asset quality,
and is consistently below 0.7%. In addition,
the BCA could be downgraded if the bank's operations become less
geographically diversified, or the profitability of its overseas
operations weakens materially.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, 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 and a global
systemically important bank, as identified by the Financial Stability
Board. Headquartered in Beijing, China, the bank reported
total assets of RMB24.7 trillion and total equity of RMB2.1
trillion as of 30 September 2020.
The local market analyst for these ratings is Nicholas Zhu, +86
(10) 6319-6536.
LIST OF AFFECTED RATINGS/ASSESSMENTS
Bank of China Limited
• baa1 affirmed for BCA and Adjusted BCA;
• A1 affirmed with stable outlook for long-term foreign-currency
deposit;
• P-1 affirmed for short-term foreign-currency
deposit;
• (P)A1 affirmed for local/foreign-currency senior unsecured
MTN program;
• Baa2(hyb) affirmed for foreign-currency subordinate debt;
• Ba1(hyb) affirmed for foreign-currency preference stock
(non-cumulative);
• 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;
• Outlook remains stable.
Bank of China Limited, Abu Dhabi Branch
• (P)A1 affirmed for foreign-currency senior unsecured MTN
program;
• 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;
• Outlook remains stable.
Bank of China (Dubai) Branch
• (P)A1 affirmed for foreign-currency senior unsecured MTN
program;
• (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;
• 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;
• Outlook remains stable.
Bank of China Limited, Frankfurt Branch
• (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;
• 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;
• Outlook remains stable.
Bank of China Limited, Hong Kong Branch
• (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;
• 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;
• Outlook remains stable.
Bank of China Limited, London Branch
• (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;
• 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;
• Outlook remains stable.
Bank of China Limited, Luxembourg Branch
• (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;
• 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;
• Outlook remains stable.
Bank of China Limited, Macau Branch
• (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;
• 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;
• Outlook remains stable.
Bank of China Limited, New York Branch
• (P)A1 affirmed for local-currency senior unsecured MTN program;
• 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;
• Outlook remains stable.
Bank of China Limited, Paris Branch
• (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 local/foreign-currency commercial
paper;
• 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;
• Outlook remains stable.
Bank of China Limited, Singapore Branch
• (P)A1 affirmed for foreign-currency senior unsecured MTN
program;
• A1 affirmed with stable outlook for long-term foreign-currency
senior unsecured debt;
• 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;
• Outlook remains stable.
Bank of China Limited, Sydney Branch
• (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;
• 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;
• Outlook remains stable.
Bank of China Limited, Taipei Branch
• (P)A1 affirmed for foreign-currency senior unsecured MTN
program;
• A1 affirmed with stable outlook for long-term foreign-currency
senior unsecured debt;
• 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;
• Outlook remains stable.
Bank of China Limited, Tokyo Branch
• (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;
• 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;
• Outlook remains stable.
Bank of China (Luxembourg) S.A.
• A1 affirmed with stable outlook for backed long-term local-currency
senior unsecured debt;
• Outlook remains stable.
Amipeace Limited
• A1 affirmed with stable outlook for backed long-term local-currency
senior unsecured debt.
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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
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 www.moodys.com.
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.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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 www.moodys.com.
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
Yat Man Sally Yim, CFA
MD - Financial Institutions
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
