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Rating Action:

Moody's affirms China CITIC Bank's Baa2/P-2 deposit ratings; outlook stable

 The document has been translated in other languages

16 Dec 2021

Hong Kong, December 16, 2021 -- Moody's Investors Service has affirmed China CITIC Bank Corporation Limited's (CITICB) long-term and short-term foreign currency deposit ratings at Baa2/P-2, its Baseline Credit Assessment (BCA) and Adjusted BCA at ba2, its long-term and short-term Counterparty Risk Assessment (CR Assessment) at Baa2(cr)/P-2(cr), its long-term and short-term local currency and foreign currency Counterparty Risk Rating (CRR) at Baa2/P-2, and its foreign currency senior unsecured debt rating at Baa2.

The outlook on the ratings remains stable.

A list of all affected ratings and assessments is provided at the end of this press release.

RATINGS RATIONALE

The affirmation of CITICB's ba2 BCA and Baa2 deposit ratings reflects the bank's stable asset quality, sound profitability and steady funding profile. Moody's expects the bank will continue to hold adequate liquid resources to cover its market funds/tangible banking assets. However, the bank's capitalization remains modest, despite recent development.

Moody's expects CITICB's asset quality to remain stable, benefiting from its increased exposure of the retail banking business. However, the formation of new nonperforming loans (NPLs) remains a risk to CITICB's asset quality because of potential transitional risks from the structural adjustment in China's economic growth model, especially the increasing pressure on China's property market. Retails loans accounted for 41.3% of gross loans as of 30 September 2021, up from only 26.4% at the end of 2015. As of 30 September 2021, the bank's reported NPL ratio was 1.48%, a decrease from 1.64% as of the end of 2020. As of 30 September 2021, the bank's NPL coverage ratio was 184.6%, up from 171.7% as of the end of 2020.

Moody's believes CITICB is able to manage the risk associated with the correction in China's property market because its exposures to property developers are not substantial. As of 30 June 2021, CITICB's exposures to property development loans equal to 6.3% of gross loans, lower than peer banks that Moody's rates. However, in Moody's view, the bank is subject to reputational risk from the property-related off-balance sheet businesses of which it does not bear credit risks, such as wealth management funds, entrusted loans, agency distribution of trust schemes under the active management by cooperative institutions, and debt-financing instruments with CITICB as the lead underwriter.

CITICB has improved its capital position in recent years, supported by its moderate risk-weighted asset growth and steady profitability. Moody's expect the bank to maintain its tangible common equity/risk-weighted Assets (RWA) above 8.0% for next 12 to 18 months. The bank's Common Equity Tier 1 (CET1) capital ratio was 8.8% as of 30 September 2021. It is the fourth-largest joint stock commercial bank in China and is on the domestic systematic important banks (D-SIBs) list, and thus is required to adhere to the additional CET-1 requirement of 50 basis points.

Moody's expects CITICB to maintain its profitability for next 12-18 months with return on average assets at 0.7-0.8%, supported by decreasing credit costs from the high level in 2020 and the bank's well-managed operating expenses. However, its net interest margin (NIM) faces downward pressure because of the government's guidance to lower loan pricing to support real economy. CITICB's NIM was in line with the sector average at 2.06% for the first three quarters of 2021.

CITICB will continue to maintain adequate liquid resources to cover its use of market funds. The bank has kept its ratio of market funds to tangible banking assets at a stable level of 29%-30% since 2016.

CITICB's rating is based on China's Moderate+ Banking System Macro Profile. CITICB's current deposit rating of Baa2 incorporates the bank's ba2 BCA and a three-notch uplift, based on Moody's assessment of a very high level of government support for the bank in times of need. CITICB's Adjusted BCA, which incorporates no uplift of affiliate support, is at the same level as its BCA. China does not have an operational bank resolution regime. Therefore, Moody's applies a basic Loss Given Failure (LGF) approach in rating Chinese banks' securities.

Moody's assessment of a very high level of government support is driven by the bank's position as one of 19 domestic systematic importance banks in China, with a nationwide deposit market share of 2.5% as of 30 September 2021; and the 65.97% ownership of CITICB through the wholly-state-owned CITIC Group Corporation.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could upgrade the bank's ratings if it assesses that the Chinese government's capacity to support the bank strengthens, as reflected by an upgrade of China's sovereign rating, or if the bank's BCA is upgraded.

Moody's could upgrade the BCA if the bank's asset quality, as measured by problem loans/gross loans, remains unaffected by the structural adjustments in China's economy; its profitability remains resilient, with its return on average assets consistently above 0.8%; its capitalization strengthens, with its Core Tier 1 capital ratio consistently above 9%; and its reliance on market funding decreases, with an improvement in its market funds/tangible banking assets.

Moody's could downgrade the bank's ratings if it assesses that the Chinese government's capacity or willingness to support the bank weakens, or if the bank's BCA is downgraded.

Moody's could downgrade the BCA if the bank's operating environment weakens significantly, which could arise as China's economic growth moderates further, or its corporate financial leverage continues to increase; the bank's asset quality weakens significantly; its capitalization weakens with a decline in its Core Tier 1 capital ratio to consistently below 7.5% - 8.0%; its profitability deteriorates, with its return on average assets consistently below 0.5%; its reliance on market funding increases, with an increase in its market funds/tangible banking assets.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

China CITIC Bank Corporation Limited is a joint-stock commercial bank headquartered in Beijing, with total assets of RMB7,893 billion and a total equity of RMB633.5 billion as of 30 September 2021.

LIST OF AFFECTED RATINGS/ASSESSMENTS FOR CITICB:

- Affirmed Baa2 rating of long-term foreign currency bank deposits; outlook remains stable

- Affirmed P-2 rating of short-term foreign currency bank deposits

- Affirmed Baa2(cr)/P-2(cr) long-term/short-term Counterparty Risk Assessment

- Affirmed Baa2/P-2 long-term/short-term local currency and foreign currency Counterparty Risk Rating

- Affirmed ba2 BCA and Adjusted BCA

- Affirmed Baa2 rating of long-term foreign currency senior unsecured Regular Bond/Debenture ; outlook remains stable

- Outlook remains stable

The local market analyst for these ratings is Yan Li, +86 (106) 319-6561.

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 entity is participating and the rated entity or its agent(s) generally provides 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.

David Jinhua Yin
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

Chen Huang
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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