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Rating Action:

Moody's affirms China Everbright Bank's Baa2 long-term deposit rating; changes outlook to stable

 The document has been translated in other languages

Global Credit Research - 06 Dec 2017

Hong Kong, December 06, 2017 -- Moody's Investors Service has affirmed China Everbright Bank Company Limited's long-term/short-term deposit ratings at Baa2/P-2.

The bank's baseline credit assessment (BCA) and Adjusted BCA are affirmed at ba2. Its Counterparty Risk (CR) Assessment is affirmed at Baa2(cr)/P-2(cr).

The outlook on all the ratings is changed to stable from negative.

RATINGS RATIONALE

The bank's ba2 BCA reflects its stabilizing asset quality metrics, effort to strengthen its capital position, a moderate liquidity profile and pressure on its profitability.

We expect nonperforming loan (NPL) ratio to stabilize. The latest reported NPL ratio was 1.58% as of 30 September 2017. Non-lending asset quality is likely to stabilize as well given the tightening regulatory environment curtailing shadow-banking and interbank activities.

The bank's capital position is likely to strengthen, given the adjustment towards slower asset growth and the ongoing plan to raise equity capital. As of 30 September 2017, the bank reported a core tier 1 capital ratio of 8.7%, up from 8.2% nine months earlier.

The bank has moderate funding position, with customer deposits comprising 60.3% of its total liabilities as of 30 June 2017. Furthermore, the bank's reliance on market funding has decreased in the first nine months of 2017 as part of a proactive adjustment to the tightening regulatory environment. The bank's holding of liquid assets is likely to remain stable. The liquid banking assets as a ratio of tangible banking assets was 32.9% as of 30 June 2017.

The bank's profitability remains strained by declining loan yields and intense competition for customer deposits, with a below-peer net interest margin (NIM) at 1.52% in the first half of 2017. We expect the bank's profitability to remain pressured due to higher costs of funding under the tightening regulatory environment.

The bank's Baa2 long-term deposit rating incorporates three notches of government support uplift from its ba2 BCA, based on our expectation of a very high level of extraordinary support from the government in times of stress. The expectation of a very high level of government support reflects (1) the bank's market share, constituting 1.6% of domestic loans and 1.5% of domestic deposits, as of 30 June 2017; and (2) the bank's majority government ownership, mainly through the sovereign wealth fund Central Huijin Investment Ltd. and the bank's parent China Everbright Group which in turn is wholly owned by the government.

WHAT COULD MOVE THE RATING UP

The bank's long-term deposit rating incorporates a very high level of government support. The rating could be upgraded if there is an upgrade of the sovereign rating or the bank's BCA.

The bank's BCA could experience upward pressure if (1) the leverage growth in the Chinese economy is arrested and shadow-banking risks are contained, resulting in an improved operating environment and a change of the macro profile; (2) the bank's asset quality - as measured by the rate of formation of problem loans, and profitability, as measured by the return on assets - remain resilient; or (3) the bank's capital strengthens, with improvement in its tangible common equity (TCE) capital ratio as a result of external or internal capital generation and sound growth strategy of risk-weighted assets.

WHAT COULD MOVE THE RATING DOWN

The bank's long-term deposit rating could be downgraded if China's sovereign rating is downgraded, or if we assess that the Chinese government's ability or willingness to support the bank has weakened.

The bank's BCA could experience downward pressure if (1) the operating environment weakens materially, for example, if China's economic growth moderates or corporate financial leverage continues to increase; (2) the bank's asset quality and profitability weaken materially; or (3) the bank's capital weakens, with a deterioration in its TCE capital ratio.

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.

China Everbright Bank Company Limited is headquartered in Beijing. It reported assets of RMB4.0 trillion as of 30 September 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.

David Yin
Vice President - Senior Analyst
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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