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Rating Action:

Moody's affirms BOC (Hong Kong), CCB (Asia), ICBC (Asia) and ICBC (Macau)'s ratings; revises outlook for all four banks to stable

25 May 2017

Hong Kong, May 25, 2017 -- Moody's Investors Service has today affirmed Bank of China (Hong Kong) Limited's (BOC (Hong Kong)) Aa3 long-term deposit ratings, affirmed the A2 long-term deposit and senior unsecured debt ratings of China Construction Bank (Asia) Corporation Ltd. (CCB (Asia)) , and affirmed the A2 long-term deposit ratings of Industrial and Commercial Bank of China (Asia) Ltd. (ICBC (Asia)) and Industrial and Commercial Bank of China (Macau) Ltd (ICBC (Macau)).

At the same time, Moody's has affirmed BOC (Hong Kong)'s baseline credit assessment (BCA) and adjusted BCA at a2, CCB (Asia) and ICBC (Asia)'s BCAs and adjusted BCAs at baa1, and ICBC (Macau)'s BCA at baa3 and adjusted BCA at baa2.

This follows Moody's decision to downgrade China's sovereign rating to A1 from Aa3 and Hong Kong's sovereign rating to Aa2 from Aa1 and revise their outlooks to stable from negative, and the subsequent rating actions on these banks' Mainland Chinese parents, as announced on May 24, 2017. For full details on China sovereign rating action, please refer to webpage: https://www.moodys.com/viewresearchdoc.aspx?docid=PR_366139. For full details on Hong Kong sovereign rating action, please refer to webpage: https://www.moodys.com/viewresearchdoc.aspx?docid=PR_366144.

For full details on these banks' Mainland parents, please refer to webpage: https://www.moodys.com/viewresearchdoc.aspx?docid=PR_366838.

The outlooks on all four banks' ratings have been revised to stable from negative. Outlooks, which provide an opinion on likely rating direction over the medium term, are assigned only to banks' long-term deposit, issuer and senior unsecured debt ratings.

The list of affected ratings follows at the end of the press release.

RATINGS RATIONALE

The change in outlook to stable for these four Hong Kong and Macau subsidiaries of Chinese banks takes into account the one notch downgrade on China and Hong Kong's sovereign rating and the revision of their outlooks to stable, and on the affirmation of the parent banks' ratings and revision of their outlook to stable.

The long-term deposit ratings of these four banks incorporate uplifts from either indirect support from the Chinese government, which flows through their parents, and/or the Hong Kong government. Therefore, their rating outlook is affected by the change in outlook for the Chinese and Hong Kong governments.

BOC (Hong Kong)

The affirmation of BOC (Hong Kong)'s a2 BCA takes into account its very strong market position in Hong Kong, sound asset quality, strong liquidity profile, and strengthened capitalization following its disposal of Nanyang Commercial Bank, Ltd. (A3 stable, baa2) and Chiyu Banking Corporation, Ltd. (Baa1 stable, baa1). It also takes into account expected changes in the bank's loan mix as it increases its credit exposures in ASEAN countries.

BOC (Hong Kong) has a well-established franchise in Hong Kong as the second largest bank in the territory. The bank's strong market position and deposit franchise lead to low funding costs and strong profitability. The bank maintains one of the strongest capitalization profiles among Hong Kong banks, with a tangible common equity/risk weighted assets ratio of 19.0% at end-2016. The bank has also maintained good asset quality with an NPL ratio of 0.2% as of end-2016.

BOC (Hong Kong)'s deposit ratings incorporate expectations of support from the Hong Kong government, and indirect support from the Chinese government that Moody's expects would flow through the parent Bank of China. We continue to expect high probability of support from the Hong Kong government and the bank's Chinese parent in the event of stress, resulting in two notches of uplift in the bank's deposit ratings.

CCB (Asia)

The affirmation of CCB (Asia)'s baa1 BCA takes into account its strong capitalization and very good asset quality metrics despite the subdued operating environment. The bank's BCA also reflects its weaker profitability and funding profile than peers, as well as its increasing direct credit exposures to Mainland borrowers given the strengthening collaboration with its parent.

The bank's deposit and senior unsecured debt ratings continue to incorporate two notches of Chinese government support, following affirmation of parent bank rating and despite the downgrade of China's sovereign rating. Moody's continues to expect strong support from the Chinese government to flow through its parent, given the Chinese government's majority ownership in the parent, the parent's systemic importance and the bank's strategic importance to the group.

ICBC (Asia)

The affirmation of ICBC (Asia)'s baa1 BCA takes into account its sound asset quality metrics and healthy profitability with better-than-peer cost efficiency. The bank's asset quality has held up well despite challenging operating conditions in both Hong Kong and Mainland China and steady increase in exposure to Mainland corporates. Nonetheless, the expected strong growth in the bank's balance sheet, and particularly in its Mainland-related exposures, weighs on its capital and funding profile.

ICBC (Asia) has one of the largest Mainland exposures among rated peers, with non-bank Mainland exposures accounting for 45% of total assets at end-2016. Moody's will continue to monitor the bank's sizeable Mainland exposure and the impact on the bank's fundamental credit assessment.

ICBC (Asia)'s deposit ratings continue to incorporate two notches of Chinese government support, following affirmation of parent bank rating and despite the downgrade of China's sovereign rating. Moody's continues to expect strong support from the Chinese government to flow through the bank's parent, given the Chinese government's majority ownership in the parent, the parent's systemic importance and the bank's strategic importance to the group.

ICBC (Macau)

The affirmation of ICBC (Macau)'s BCA takes into account its resilient asset quality metrics and relatively stable performance despite the volatility in Macau's economic growth and property market. The baa3 BCA reflects the bank's market position as the second largest bank in Macau by assets, as well as its good capitalization, stable profitability and sound asset quality metrics. These strengths are offset by Moody's concerns over its fast balance sheet growth, high lending concentration, and high reliance on corporate deposits for funding.

Moody's expectations of very strong support from its parent and indirect systemic support from the Chinese government flowing through its parent, result in a four-notch uplift in the bank's deposit ratings to A2. The support uplift stems from the parent's systemic importance in China, and ICBC (Macau)'s close business ties with its parent.

WHAT COULD MOVE THE RATINGS UP

The banks' deposit ratings could be upgraded if China's sovereign or the parent banks' ratings are upgraded. The banks' standalone credit assessments are unlikely to be upgraded given the expected deterioration in operating conditions.

WHAT COULD MOVE THE RATINGS DOWN

The banks' deposit ratings could be downgraded if government support diminishes or if the parents' ratings are downgraded.

The banks' BCAs will likely be downgraded if rapid growth in their Mainland or overseas exposures results in weakened capitalization and liquidity profiles.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Bank of China (Hong Kong) Limited, headquartered in Hong Kong, held total assets of HKD2,217 billion at end-2016.

China Construction Bank (Asia) Corporation Ltd., headquartered in Hong Kong, held total assets of HKD512 billion at end-2016.

Industrial and Commercial Bank of China (Asia) Ltd., headquartered in Hong Kong, held total assets of HKD799 billion at end-2016.

Industrial and Commercial Bank of China (Macau) Ltd, headquartered in Macau, held total asset of MOP203 billion at end-June 2016.

LIST OF AFFECTED RATINGS

Issuer: Bank of China (Hong Kong) Limited -- lead analyst: Sonny Hsu

.... BCA affirmed at a2

.... Adjusted BCA affirmed at a2

.... CR Assessment affirmed at Aa2(cr)/P-1(cr)

.... Long term deposit rating affirmed at Aa3, outlook is revised to stable from negative

.... Short term deposit rating affirmed at P-1

.... Commercial paper affirmed at P-1

.... Senior unsecured MTN program affirmed at (P)Aa3

.... Subordinate debt affirmed at A3

.... Subordinated MTN program affirmed at (P)A3

Outlook for the bank is revised to stable from negative

Issuer: China Construction Bank (Asia) Corp. Ltd. -- lead analyst: Sherry Zhang

.... BCA affirmed at baa1

.... Adjusted BCA affirmed at baa1

.... CR Assessment affirmed at A1(cr)/P-1(cr)

.... Long term deposit rating affirmed at A2, outlook is revised to stable from negative

.... Short term deposit rating affirmed at P-1

.... Long term Deposit note/CD program affirmed at (P)A2

.... Short term Deposit note/CD program affirmed at (P)P-1

.... Senior unsecured debt affirmed at A2, outlook is revised to stable from negative

.... Senior unsecured MTN program affirmed at (P)A2

.... Basel III-compliant subordinate debt affirmed at Baa2(hyb)

.... Other short term affirmed at (P)P-1

Outlook for the bank is revised to stable from negative

Issuer: Industrial & Commercial Bank of China (Asia) Ltd. -- lead analyst: Sherry Zhang

.... BCA affirmed at baa1

.... Adjusted BCA affirmed at baa1

.... CR Assessment affirmed at A1(cr)/P-1(cr)

.... Long term deposit rating affirmed at A2, outlook is revised to stable from negative

.... Short term deposit rating affirmed at P-1

.... Senior unsecured MTN program affirmed at (P)A2

. Commercial paper affirmed at P-1

. Non-cumulative preferred stock affirmed at Ba1(hyb)

.... Subordinate debt affirmed at Baa2

. Subordinate MTN program affirmed at (P)Baa2

.... Other short term affirmed at (P)P-1

Outlook for the bank is revised to stable from negative

Issuer: Industrial & Commercial Bank of China (Macau) Ltd -- lead analyst: Sherry Zhang

.... BCA affirmed at baa3

.... Adjusted BCA affirmed at baa2

.... CR Assessment affirmed at A1(cr)/P-1(cr)

.... Long term deposit rating affirmed at A2, outlook is revised to stable from negative

.... Short term deposit rating affirmed at P-1

.... Long term Deposit note/CD program affirmed at (P)A2

.... Short term Deposit note/CD program affirmed at (P)P-1

Outlook for the bank is revised to stable from negative

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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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.

Sonny Hsu, CFA
VP - Senior Credit Officer
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

No Related Data.
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