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Rating Action:

Moody's affirms ICBC Standard Bank Plc's deposit and issuer ratings at Baa3/P-3 and Baa3 respectively; outlook maintained at stable

16 May 2018

London, 16 May 2018 -- Moody's Investors Service today affirmed the ICBC Standard Bank Plc's (ICBC SB) long- and short-term deposit ratings of Baa3/Prime-3 and the bank's long-term issuer rating of Baa3. At the same time, the rating agency upgraded ICBC SB's baseline credit assessment (BCA) to ba3 from b1, its adjusted BCA to baa2 from baa3, and its subordinated debt rating to Baa3 from Ba1. The Counterparty Risk Assessments of Baa2(cr)/Prime-2(cr) were also affirmed. The outlooks on the bank's long-term deposit and issuer ratings remain stable.

The upgrade of the BCA and adjusted BCA reflects the return to profit in 2017 following losses in previous years, which were driven by depressed commodities prices and a relatively high operating cost base. The upgrade also reflects the steady integration of ICBC SB within the processes and customer base of its 60% owner, Industrial and Commercial Bank of China Limited (ICBC, A1 stable, baa2).

For a full list of affected credit ratings please see below.

RATINGS RATIONALE

RATIONALE FOR THE BCA AND ADJUSTED BCA

ICBC SB's BCA of ba3 incorporates the bank's improved profitability, through increased revenue in the trading business, predominantly through commodities and foreign exchange, as well as through higher net fees and commission income. This has been helped by more client referrals from ICBC. While in its first year of operation, ICBC SB did not meet its target level of incremental revenues coming from the introduction of ICBC's clients, the strategy of connecting ICBC SB's commodities and market capabilities in Africa with Asian clients introduced by ICBC is now bearing fruit. This has led Moody's to remove a one-notch negative adjustment for Corporate Behaviour from the BCA. The BCA also benefits from the relative strength of the global markets business in a number of capital markets products, adequate capital position and strong liquidity profile. The BCA is, however, constrained by ICBC SB's limited business diversification and its inherent opacity and complexity, similar to other banking entities with a material reliance on capital markets activities.

The adjusted BCA of baa2 incorporates a very high likelihood of support from ICBC. The adjusted BCA incorporates ongoing support from ICBC in terms of liquidity, capital and Moody's expectation of an increasingly shared client base as ICBC channels the global markets trading needs of its Chinese multinational client base, as well as that of its global subsidiaries, through ICBC SB. Under most circumstances, the agency believes that ICBC would provide support to ICBC SB.

RATIONALE FOR THE DEPOSIT AND ISSUER RATINGS

The affirmation of ICBC SB's deposit ratings at Baa3/P-3 and of its issuer rating at Baa3, as well as the upgrade of the subordinate rating to Baa3, are based on the bank's adjusted BCA and the results of Moody's Advanced LGF analysis.

Given the bank's focus on capital market operations, and in line with similar institutions, Moody's considers that ICBC SB would be subject to a higher loss rate than a traditional retail bank and has increased its assumption for the loss rate on tangible banking assets in failure to 13% from 8%.

Based upon the above, Moody's analysis indicates that ICBC SB's deposits, senior debt and subordinate debt are likely to face high loss-given failure, due to the limited amount of deposits in combination with a modest amount of subordinated debt. This results in a Preliminary Rating Assessment (PRA) of baa3 for all three instruments, one notch below the level of the adjusted BCA.

Moody's considers the probability of UK government support for ICBC SB's senior liabilities to be low because the bank is not systemically important at either the domestic or international level. As such, the ratings do not incorporate any uplift from government support, and the final deposit and issuer ratings are therefore both Baa3.

RATIONALE FOR THE OUTLOOK

The stable outlook on ICBC SB's ratings reflects Moody's expectation that the bank's fundamentals will remain broadly unchanged over the next eighteen months as the bank further completes its integration with its majority owner.

WHAT COULD CHANGE THE RATINGS UP/DOWN

ICBC SB's BCA could be upgraded because of: (i) higher and more stable earnings and organic capital generation; (ii) a more stable, self-funded business; or (iii) further de-risking of its business model. The long-term deposit and issuer ratings could also be upgraded if the bank were to issue a significant amount of external debt, reducing their loss-given-failure.

The bank's BCA could be downgraded because of: (i) an increase in risk appetite such that the trading business generates undue losses; (ii) limited incremental revenues generated by the introduction of ICBC's clients; and (iii) a downgrade or reduced support from ICBC. A downward movement in ICBC SB's adjusted BCA would likely result in downgrades of all ratings.

LIST OF AFFECTED RATINGS

Issuer: ICBC Standard Bank Plc

..Upgrades:

....Adjusted Baseline Credit Assessment, upgraded to baa2 from baa3

....Baseline Credit Assessment, upgraded to ba3 from b1

....Subordinate Regular Bond/Debenture, upgraded to Baa3 from Ba1

..Affirmations:

....Long-term Counterparty Risk Assessment, affirmed Baa2(cr)

....Short-term Counterparty Risk Assessment, affirmed P-2(cr)

....Long-term Bank Deposits, affirmed Baa3 Stable

....Short-term Bank Deposits, affirmed P-3

....Long-term Issuer Ratings, affirmed Baa3 Stable

....Senior Unsecured Medium-Term Note Program, affirmed (P)Baa3

..Outlook Action:

....Outlook remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in April 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

Roland Auquier
Asst Vice President - Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
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London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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