Hong Kong, November 12, 2019 -- Moody's Investors Service ("Moody's") has affirmed
following ratings and assessment of China Everbright Bank Company Limited
(CEB):
• Baa2 for long-term foreign-currency deposits,
outlook stable;
• P-2 for short-term foreign-currency deposits;
• Baa2/P-2 for long-term/short-term local/foreign-currency
Counterparty Risk Rating;
• Baa2(cr)/P-2(cr) for long-term/short-term
Counterparty Risk Assessment; and
• ba2 for Baseline Credit Assessment (BCA) and Adjusted BCA.
The rating outlook is revised to stable from positive, reflecting
Moody's view that (1) the willingness and capacity of the Government
of China (A1 stable) to support CEB will remain broadly unchanged over
the next 12-18 months; and (2) CEB's standalone BCA
will remain appropriately positioned at the current level during this
period.
RATINGS RATIONALE
The affirmation of CEB's ratings with a stable outlook reflects
the stability of the bank's financial profile. The bank's
key credit metrics including for asset quality, capitalization,
profitability and funding profile have been steady in recent periods.
Moody's expects these credit metrics to be broadly maintained going
forward, compatible with a ba2 BCA profile. Moody's
expectation is for the nonperforming loan ratio to be stable at a level
similar to the 1.6% reported as of 30 June 2019.
Tangible Common Equity capital ratio is likely to remain above 8.0%
and market funds ratio is likely to stay below 30.0%.
The slower economic growth globally and structural adjustment of the Chinese
economy are headwinds exerting pressure on bank performance. However,
Moody's does not expect much deterioration in CEB's key credit
metrics, partly because of the strong buffers the bank has built
up. Loan loss reserves covered 178.0% of nonperforming
loans as of 30 June 2019. The bank continues to hold adequate liquidity,
covering its market funds.
Moody's does not have particular governance concern for CEB, and
does not apply corporate behavior adjustment to the assessment of the
bank.
CEB's BCA is ba2 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 CEB's long-term deposits,
counterparty risk rating and counterparty risk assessment. Moody's
also assumes a very high level of support from the Chinese government
in times of need. As a result, long-term deposit rating,
counterparty risk rating and counterparty risk assessment are uplifted
by three notches.
The assessment of a very high level of government support considers (1)
the bank's systemic importance, as indicated by its market share
of the Chinese banking sector's total loans (1.7% as of
30 June 2019) and deposits (1.5% as of 30 June 2019);
and (2) the government's majority stake in the bank, through state-owned
enterprises including the government wholly owned China Everbright Group
Limited and through the sovereign wealth fund, Central Huijin Investment
Ltd.
WHAT COULD MOVE THE RATING UP/DOWN
CEB's long-term deposit rating incorporates a very high level of
government support. Hence, there could be upward pressure
on the long-term deposit rating should the Chinese government's
willingness or capability to support the bank, as reflected in the
government bond rating of China, strengthen.
CEB's BCA could experience upward pressure if (1) leverage in the
Chinese economy is successfully contained such that we consider upwardly
revising China's macro profile; (2) its asset quality,
as measured by the problem loan formation rate, improves; (3)
its profitability, as measured by the return on assets, improves;
(4) its capital strengthens, with an improvement in its tangible
common equity capital ratio; and (5) reliance on market funding decreases,
with an improvement in its market funds/tangible banking assets.
There could be downward pressure on CEB's long-term deposit
rating should the Chinese government's willingness or capability
to support the bank weaken.
CEB's BCA could experience downward pressure if (1) the operating
environment weaken materially (for example, if China's economic
growth moderates further or corporate financial leverage continues to
increase); (2) its asset quality and profitability weaken significantly;
(3) its capital weakens, with a deterioration in its tangible common
equity capital ratio; or (4) reliance on market funding increases,
with a deterioration in its market funds/tangible banking assets.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
China Everbright Bank Company Limited is a joint-stock commercial
bank. The bank is the flagship subsidiary of China Everbright Group
Limited, which is wholly owned by the government (both directly
and indirectly). Headquartered in Beijing, the bank reported
total assets of RMB4,647 billion and total equity of RMB334 billion
as of 30 June 2019.
The local market analyst for these ratings is Nicholas Zhu, 8610-6319-6536.
REGULATORY DISCLOSURES
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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
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the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
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for the Regulatory Disclosures for each credit rating action under the
ratings tab on the issuer/entity page and for details of Moody's
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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, CFA
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
