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Rating Action:

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

 The document has been translated in other languages

24 Nov 2020

Hong Kong, November 24, 2020 -- Moody's Investors Service ("Moody's") has affirmed the long-term A1 bank deposits and (P)A1 senior unsecured ratings on the Medium Term Note (MTN) program of China Construction Bank Corporation (CCB). 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 ability to support CCB will remain broadly unchanged over the next 12-18 months; and CCB'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 CCB's overseas branches and an affiliate.

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 CCB'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 would improve as China's economy recovers.

The nonperforming loan (NPL) ratio, adjusting for bad debt disposal, is likely to stabilize. CCB's strategy envisages a continued focus on digitalization and growth of retail banking. 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. CCB is China's largest lender of mortgage which accounted for 34.0% of the bank's total loans as of 30 June 2020.

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 CCB's asset quality while the bank has largely dealt with the aftermath of previous credit expansion after the Global Financial Crisis in 2008. Credit costs will likely remain at the recent level in next 12-18 months.

Moody's does not expect significant deterioration in CCB's asset quality also because of the strong buffers the bank has built up. Loan loss reserves covered 217.5% 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 12.0% 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. CCB's strategy of growth of retail banking facilitated by digitalization will also make the bank's asset portfolio somewhat less capital intensive.

Moody's expects CCB's return on assets is likely to be around 1.0% 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.

CCB 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 80.7% of total liabilities as of 30 September 2020.

CCB's rating is based on China's Moderate+ Banking System Macro Profile. CCB'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 CCB'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

CCB'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 CCB'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 CCB'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 CCB'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 CCB's BCA if the bank's capitalization weakens, with a deterioration in its Core Tier 1 capital ratio to consistently below 12.0%; 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 0.8%.

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.

China Construction Bank Corporation is a state-owned commercial bank, which accounted for 9.5% of the Chinese banking system's loans and 9.6% of deposits as of 30 September 2020. The bank is a global systemically important bank, as identified by the Financial Stability Board. Headquartered in Beijing, the bank reported total assets of RMB28.3 trillion and total equity of RMB2.3 trillion as of 30 September 2020.

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

LIST OF AFFECTED RATING/ASSESSMENT

China Construction Bank Corporation

• baa1 affirmed for Baseline Credit Assessment (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 foreign-currency senior unsecured MTN program;

• 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.

China Construction Bank Corp., Frankfurt Br.

• 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.

China Construction Bank Corp., Hong Kong Br.

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

• (P)A1 affirmed for local/foreign-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.

China Construction Bank Corp., Luxembourg Br.

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

• (P)A1 affirmed for local/foreign-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.

China Construction Bank Corp., New York Br.

• P-1 affirmed for local-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;

China Construction Bank Corp., Singapore Br.

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

• (P)A1 affirmed for local/foreign-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.

China Construction Bank Corp., Sydney Br.

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

• (P)A1 affirmed for local/foreign-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.

China Construction Bank Corp., Tokyo Br.

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

• (P)A1 affirmed for local/foreign-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.

State Elite Global Limited

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

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

• Outlook remains stable.

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

No Related Data.
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