Hong Kong, April 09, 2018 -- Moody's Investors Service has affirmed Agricultural Bank of China
Limited's (ABC) long-term/short-term deposit ratings
at A2/P-1.
And, Moody's has affirmed the bank's baseline credit
assessment (BCA) and adjusted BCA at baa3. Moody's has also
affirmed ABC's Counterparty Risk Assessment (CR Assessment) at A2(cr)/P-1(cr).
In addition, Moody's has affirmed the (P)P-1 rating
of ABC's other short-term program rating, as well as
the A2 rating of ABC's long-term senior unsecured debt and
(P)A2 rating of ABC's senior unsecured MTN.
At the same time, Moody's has affirmed the (P)P-1 ratings
on the short-term program ratings of Agricultural Bank of China
Limited, NY Branch (ABC NY Branch), Agricultural Bank of China
Limited, Dubai Branch (ABC Dubai Branch) and Agricultural Bank of
China Limited., HK Branch (ABC HK Branch).
Moody's has also affirmed the P-1 rating on ABC NY Branch's
commercial paper, A2 long-term senior unsecured ratings of
ABC NY Branch and ABC HK Branch, (P)A2 ratings on the senior unsecured
MTN of ABC NY Branch, ABC Dubai Branch and ABC HK Branch,
as well as A2(cr)/P-1(cr) counterparty risk assessment of ABC NY
Branch, ABC Dubai Branch and ABC HK Branch.
Moody's has revised the outlook on the bank's long-term
deposits and senior unsecured debt to positive from stable.
RATINGS RATIONALE
The affirmation of ABC's baa3 BCA and the change of the rating outlook
to positive is driven by: (1) the likely enhancement of the bank's
capital levels, based on its RMB100 billion private placement approved
during its shareholders' meeting, (2) the bank's improving
asset quality trend; and (3) likely improvements in ABC's profitability
over the next 12 months.
ABC's shareholders' meeting approved a RMB100 billion capital
raising plan, which Moody's calculates will boost the bank's
core Tier 1 capital ratio (CET1 ratio) and tangible common equity/risk-weighted
assets by roughly 80 basis points. Such a situation would put ABC's
capitalization ratios at levels which are more comparable to those of
its peer group; comprising the big four commercial banks in China.
ABC's asset risk situation should improve, benefiting from
the stabilization of the macroeconomic environment in China. In
fact, Moody's points out that ABC's credit costs and
new nonperforming loan (NPL) formations have stabilized. The bank
also stepped up the cleaning up of its NPLs in 2017, and stated
that such efforts will be sustained in 2018.
Because asset risk for ABC is moderating, the bank's profitability
should improve over the next 12 months. ABC has a funding cost
advantage over its peers and this is reflected in its better net interest
margin (NIM). Profitability is further supported by ABC's
high NPL coverage ratio and the recent relaxation of the provision requirement
for qualified banks from the regulator.
ABC's reliance on market funds is low. The bank's funding
profile places it in a leading position among large Chinese banks,
supported by its extensive branch network. And, its liquidity
profile has proven relatively strong and stable in recent years.
The affirmation of ABC's A2/P-1 deposit ratings incorporates
four notches of government support uplift from its baa3 BCA, based
on Moody's expectation that the bank will receive a very high level
of government support in times of need. Moody's assessment
of support reflects the bank's: (1) systemically important
position, as one of the top four banks in China by assets.
Its market share: at 31 December 2017, the bank captured 8.92%
of domestic loans and 9.87% of domestic deposits,
and (2) majority government ownership, mainly through the sovereign
wealth fund — Central Huijin Investment Ltd. — and
the Ministry of Finance of the People's Republic of China.
WHAT COULD MOVE THE RATING UP
The positive ratings outlook indicates Moody's view that an upgrade
of ABC's ratings is likely, if: 1) the bank maintains
a level of capitalization at or above the expected capital raising;
2) ABC demonstrates improvements in its asset quality trends; as
measured by new problem loan formations, as the bank steps up its
efforts in cleaning up its NPL stocks; 3) the bank shows improvements
in profitability, as measured by returns on assets; and 4)
if the growth in leverage in the Chinese economy is arrested and shadow
banking risks are contained, resulting in an improved operating
environment and a change of the country's macro profile.
ABC's deposit and senior unsecured debt ratings also incorporate a very
high level of government support.
Moody's could also upgrade ABC's ratings if Moody's
upgrades China's sovereign rating or the bank's BCA.
WHAT COULD MOVE THE RATING DOWN
Moody's will not likely downgrade ABC's ratings over the next
12-18 months, given the positive ratings outlook.
However, Moody's could revise the bank's ratings outlook
to stable, if its capital injection plan is delayed or deferred
unnecessarily.
Moody's could also change the ratings outlook to stable if the bank's
asset quality and profitability deteriorate, and therefore prove
contrary to Moody's expectations.
In addition, Moody's could downgrade ABC's ratings if Moody's
downgrades China's sovereign rating, or if Moody's assesses
that the Chinese government's ability or willingness to support the bank
has weakened.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
September 2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Agricultural Bank of China Limited is headquartered in Beijing.
The bank reported assets of RMB21 trillion at 31 December 2017.
The Local Market analyst for these ratings is Nicholas Zhu, +86
(10) 6319-6536.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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.
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
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
