Hong Kong, November 30, 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 Agricultural Bank of
China Limited (ABC). Moody's has also affirmed its baseline
credit assessment (BCA) and adjusted BCA of baa2.
The rating outlook is stable, reflecting Moody's view that (1) the
willingness and ability of the Government of China (A1 stable) to support
ABC will remain broadly unchanged over the next 12-18 months;
and (2) ABC's asset quality, capital and profitability will not
deteriorate materially at the current level during this period.
In addition, Moody's has affirmed the A1 long-term senior
unsecured debt ratings of ABC's overseas branches.
A full list of the affected ratings and assessments is provided at the
end of this press release, identifying each affected issuer.
RATINGS RATIONALE
The affirmation of ABC's ratings with a stable outlook reflects
our expectation that while the bank faces cyclical pressure on its profitability,
asset quality and capitalization because of the impact from the coronavirus,
the medium-term outlook on these financial metrics would improve
as China's economy recovers.
New formation of nonperforming loans (NPLs) caused by the slow economic
growth following the coronavirus pandemic and structural adjustment of
the Chinese economy remains a risk to ABC's asset quality while
the bank has largely dealt with the aftermath of previous credit expansion
after the Global Financial Crisis in 2008.
The bank has since 2018 narrowed the gap in their reported NPL%
to a level comparable to Big 4 Chinese bank peers, by increasing
efforts in NPL resolution. ABC's new NPL formation has also
reduced and stabilized, before the coronavirus shock. As
of the end of September 2020, the bank reported NPL ratio was 1.5%,
up from 1.4% as at the end of 2019. The deterioration
in asset risks may continue but the overall rise in asset risk is expected
to be manageable.
We expect the bank's Tangible Common Equity (TCE) to Risk-Weighted
Assets (RWA) ratio will be maintained at around at 10%, lower
than its immediate peers, but with a potential to move more in-line
with its peer group if its profitability is sustained without a significant
deterioration in its asset quality after the shock from coronavirus.
The bank's strong loan loss reserve is also a source of enhancement
to the bank's capitalization, with its NPL coverage at 272.4%
as of 30 September 2020. Moody's expects its RWA will grow
broadly in line with the bank's internal capital generation capacity
in the next 12-18 months. The Chinese government has been
calling banks to support the economy post coronavirus outbreak and major
banks, including ABC, have responded by increasing credits
to the economy and has resulted in a faster increase in RWA relatively
to capital.
Moody's expects the bank's profitability as measured by net
income/tangible assets will be maintained above 0.8% in
the next 12-18 months. The bank's continued increase
lending to county areas, which has higher asset yields but a similar
level of asset quality with the remainder of the bank in the past two
years, will help mitigate some profitability pressure. In
addition, the bank continues its investments in digitalization which
will serve to improve efficiency and revenue growth.
Overall, its net income/tangible banking assets -- declined
to 0.81% in 1H2020, pressured by narrowing net interest
margins and increasing credit costs. Credit costs came down after
peaking in 2Q2020 but will remain elevated in the next 12-18 months
as banks, including ABC, continue to manage the coronavirus
shock.
ABC's ample liquidity remains its key credit strength, with
its liquid banking assets / tangible banking assets at a level well over
40%, 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
81.9% of total liabilities as of 30 September 2020.
ABC's rating is based on China's Moderate+ Banking System Macro
Profile. ABC's baa2 BCA do not incorporate any affiliate support.
China does not have an operational resolution regime. Therefore,
Moody's applies its basic Loss Given Failure approach in rating ABC'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 four notches to A1.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
ABC's long-term deposit rating is already at the same level
as Government of China's senior unsecured debt rating and factors
in a very high level of government support. As such, Moody's
could upgrade ABC's rating if China's senior unsecured rating
is upgraded.
Moody's could upgrade ABC's BCA if China's credit conditions
improve with strong economic recovery supported by a less intensive credit
growth, and the bank's (1) capitalization strengthens, with
an improvement in its Common Equity Tier 1 (CET1) ratio consistently above
11%, (2) its NPL provision coverage ratio is consistently
maintained at the current level; (3) its assets and profitability
are maintained at around the current level consistently.
Conversely, Moody's could downgrade the long-term deposit
rating if the government's willingness or capability to support
the bank weakens.
Moody's could downgrade ABC'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 ABC's BCA if
the bank's (1) profitability, as measured by net income/tangible
banking asserts, reduced, which could be a result of much
weaker asset quality, and is consistently below 0.5%;
or (2) capitalization weakens, with a deterioration in its CET 1
ratios to consistently below 9.5%-10%.
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.
Agricultural Bank of China Limited, headquartered in Beijing,
reported total assets of RMB26.5 trillion as of 30 June 2020.
The bank is a global systemically important bank as designated by the
G-20's Financial Stability Board.
LIST OF AFFECTED RATING/ASSESSMENT
..Issuer: Agricultural Bank of China Limited
....Adjusted Baseline Credit Assessment,
Affirmed baa2
....Baseline Credit Assessment, Affirmed
baa2
....Long-term Counterparty Risk Assessment,
Affirmed A1(cr)
....Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
....Long-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed A1
....Short-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed P-1
....Long-term Deposit Rating (Foreign
and Local Currency), Affirmed A1, stable
....Short-term Deposit Rating (Foreign
and Local Currency), Affirmed P-1
....Senior Unsecured Medium-Term Note
Program (Foreign Currency), Affirmed (P)A1/(P)P-1
....Outlook, Remains Stable
..Issuer: Agricultural Bank of China Limited,
Macao Br.
....Long-term/Short-term Senior
Unsecured Deposit Note/CD Program (Foreign and Local Currency),
Affirmed (P)A1/(P)P-1
....Long-term/Short-term Senior
Unsecured Deposit Note/CD Program Takedown (Foreign Currency) ,
Affirmed A1, stable/P-1
....Outlook, Remains Stable
..Issuer: Agricultural Bank of China Limited,
NY Branch
....Long-term Counterparty Risk Assessment,
Affirmed A1(cr)
....Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
....Long-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed A1
....Short-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed P-1
....Commercial Paper (Local Currency),
Affirmed P-1
....Senior Unsecured Medium-Term Note
Program (Local Currency), Affirmed (P)A1/(P)P-1
....Outlook, Remains Stable
..Issuer: Agricultural Bank of China Ltd, Dubai
Branch
....Long-term Counterparty Risk Assessment,
Affirmed A1(cr)
....Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
....Long-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed A1
....Short-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed P-1
....Senior Unsecured Medium-Term Note
Program (Foreign Currency), Affirmed (P)A1/(P)P-1
....Outlook, Remains Stable
..Issuer: Agricultural Bank of China Ltd, Singapore
Br.
....Senior Unsecured Medium-Term Note
Program (Foreign and Local Currency), Affirmed (P)A1/(P)P-1
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed A1, stable
....Outlook, Remains Stable
..Issuer: Agricultural Bank of China Ltd.,
HK Branch
....Long-term Counterparty Risk Assessment,
Affirmed A1(cr)
....Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
....Long-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed A1
....Short-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed P-1
....Senior Unsecured Medium-Term Note
Program (Foreign Currency), Affirmed (P)A1/(P)P-1
....Senior Unsecured Regular Bond/Debenture
(Foreign and Local Currency), Affirmed A1, stable
....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
