Hong Kong, January 28, 2021 -- Moody's Investors Service ("Moody's") has affirmed
(1) the long-term Baa2 local-currency and foreign-currency
bank deposit ratings, and (2) the short-term P-2 local-currency
and foreign-currency bank deposit ratings of Shanghai Pudong Development
Bank Co., Ltd. (SPDB). Moody's has also affirmed
the bank's Baseline Credit Assessment (BCA) and adjusted BCA of ba2.
The outlook remains stable, reflecting Moody's view that the Chinese
government's willingness and capacity to support SPDB will remain broadly
unchanged over the next 12-18 months; and that SPDB's asset
quality, capital and profitability will remain roughly stable during
this period.
A full list of affected ratings and assessments is at the end of this
press release.
RATINGS RATIONALE
The affirmation of SPDB's ratings reflects Moody's expectation
that although the bank faces cyclical pressure on its profitability,
asset quality and capitalization because of the shock from the coronavirus,
its financial metrics will improve over the medium term as China's
economy recovers. In addition, the bank has adequate liquidity
and has lowered its reliance on market funding in recent years,
and continues to enjoy a very high level of government support.
SPDB's new nonperforming loan (NPL) formation rate is likely to
stabilize in the coming 12-18 months. The bank has managed
its loan growth well and has focused on improving loan structures in the
past two years, resulting in the percentage of credit card and personal
consumption loans to gross loans declining. Moody's expects
the bank's asset risk in retail loans will decline with the recovery
of economy, stabilized unemployment rate and the bank's lending
policy adjustments to lower-risk segments.
That said, new NPL formation amid structural adjustments in the
Chinese economy will remain a key risk to SPDB's asset quality,
which still lags the average among Moody's rated banks when the
bank continues to resolve some of the historical problem loans.
Moody's expects SPDB's profitability, as measured by
net income/tangible assets, will remain above 0.75%
in the next 12-18 months. Credit costs will remain elevated,
with more delinquencies surfacing due to the coronavirus outbreak.
The bank's net interest margin dropped more significantly compared with
its rated joint-stock commercial bank peers in the first half of
2020 as it adjusted its loan portfolio to lower-risk segments and
the regulator guided loan rates down. However, Moody's
expects SPDB's profitability will stabilize as the loan pricing
stabilizes over the medium term and fees and commissions continue to grow
with the recovery of the economy.
SPDB's tangible common equity (TCE) capital ratio should remain
above 8.5%, despite declining slightly as the growth
of its risk-weighted assets outpaces its internal capital generation
capacity over next 12-18 months. Enhanced regulation relating
to countercyclical capital buffers and the coming requirement of capital
surcharge for domestic systemically important banks will support the bank's
capitalization.
Moody's expects SPDB's liquidity profile will remain stable in the
next 12-18 months. The bank's reliance on market funding
has declined in recent years on strict regulation on interbank business
and the bank's growing deposit base, although it remains higher
than that of most rated joint-stock commercial banks. The
bank has adequate liquid resources, which at 36.7%
of tangible banking assets at the end of June 2020 are sufficient to cover
its market funds.
SPDB's rating is based on China's Moderate+ Banking System Macro
Profile. Its BCA is ba2, and its ba2 adjusted BCA does not
incorporate any affiliate support. China does not have an operational
bank resolution regime, as a result, Moody's applies its basic
Loss Given Failure approach to rating SPDB's debt securities and assumes
a very high level of support from the Chinese government in times of need.
Given this, SPDB's deposit ratings, Counterparty Risk
Assessment and Counterparty Risk Ratings incorporate three notches of
uplift.
Moody's assessment of a very high level of government support is
based on SPDB's national market share of 2%-3% of
total assets in the system as of the end of September 2020. Moody's
believes SPDB is an important pillar for the Shanghai government in the
financial services industry and in the context of Shanghai's role as a
financial center. SPDB's largest shareholder is Shanghai International
Group -- a financial holding company that is wholly owned
by the Shanghai municipal government -- which held a 29.67%
stake in the bank as of the end of June 2020.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on SPDB's deposit rating could arise if the Chinese
government's capacity to support the bank strengthens, as reflected
in China's sovereign rating, or if the bank's BCA is
upgraded.
Moody's could upgrade SPDB's BCA if (1) its asset quality
improves, with the ratio of impaired loans to gross loans consistently
below 2%; (2) its profitability remains resilient, with
its net incomes to tangible assets consistently above 0.8%;
(3) its capital strengthens, with its TCE ratio above 10%;
and (4) its reliance on market funding decreases, with its market
funds/tangible banking assets consistently below 25%.
On the other hand, SPDB's deposit ratings could come under pressure
if support from the Chinese government weakens or if the bank's
BCA is downgraded.
Moody's could downgrade SPDB's BCA if the bank's operating
environment weakens materially; for example, if (1) China's
economic growth slows as coronavirus-induced weakness lingers;
or (2) China's corporate financial leverage increases significantly
as a result of loose monetary policies.
Moody's could also downgrade SPDB's BCA if (1) its asset quality
deteriorates, with the ratio of impaired loans to gross loans above
4%; (2) its profitability deteriorates, with its net
income to tangible assets consistently below 0.55%;
and/or (3) its reliance on market funding increases, with its market
funds/tangible banking assets above 40%.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in Shanghai, Shanghai Pudong Development Bank Co.,
Ltd. reported total assets of around RMB7.7 trillion as
of the end of September 2020.
The local market analyst for these ratings is Yulia Wan, +86
(212) 057-4017.
LIST OF AFFECTED RATINGS/ASSESSMENTS
..Issuer: Shanghai Pudong Development Bank Co.,
Ltd.
.... Adjusted Baseline Credit Assessment,
Affirmed ba2
.... Baseline Credit Assessment, Affirmed
ba2
.... Long-term Counterparty Risk Assessment,
Affirmed Baa2(cr)
.... Short-term Counterparty Risk Assessment,
Affirmed P-2(cr)
.... Long-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed Baa2
.... Short-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed P-2
....Long-term Deposit Rating (Foreign
and Local Currency), Affirmed Baa2; Outlook remains Stable
.... Short-term Deposit Rating (Foreign
and Local Currency), Affirmed P-2
....Other Short Term Medium-Term Note
Program (Foreign and Local Currency), Affirmed (P)P-2
....Long-term Senior Unsecured Medium-Term
Note Program (Foreign and Local Currency), Affirmed (P)Baa2
....Outlook, Remains Stable
..Issuer: Shanghai Pudong Dev. Bk Co.,
Ltd., HK Branch
.... Long-term Counterparty Risk Assessment,
Affirmed Baa2(cr)
.... Short-term Counterparty Risk Assessment,
Affirmed P-2(cr)
.... Long-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed Baa2
.... Short-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed P-2
....Long-term Senior Unsecured Regular
Bond/Debenture (Foreign Currency), Affirmed Baa2; Outlook remains
Stable
....Other Short Term Medium-Term Note
Program (Foreign and Local Currency), Affirmed (P)P-2
....Long-term Senior Unsecured Medium-Term
Note Program (Foreign and Local Currency), Affirmed (P)Baa2
....Outlook, Remains Stable
..Issuer: Shanghai Pudong Development Bank,
Singapore
.... Long-term Counterparty Risk Assessment,
Affirmed Baa2(cr)
.... Short-term Counterparty Risk Assessment,
Affirmed P-2(cr)
.... Long-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed Baa2
.... Short-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed P-2
....Long-term Senior Unsecured Regular
Bond/Debenture (Foreign Currency), Affirmed Baa2; Outlook remains
Stable
....Other Short Term Medium-Term Note
Program (Foreign and Local Currency), Affirmed (P)P-2
....Long-term Senior Unsecured Medium-Term
Note Program (Foreign and Local Currency), Affirmed (P)Baa2
....Outlook, Remains Stable
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
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same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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issued on a support provider, this announcement provides certain
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support provider and in relation to each particular credit rating action
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provides certain regulatory disclosures in relation to the provisional
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and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
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3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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The Global Scale Credit Rating on this Credit Rating Announcement was
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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.
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China (Hong Kong S.A.R.)
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Yat Man Sally Yim, CFA
MD - Financial Institutions
Financial Institutions Group
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Releasing Office:
Moody's Investors Service Hong Kong Ltd.
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