Hong Kong, March 27, 2020 -- Moody's Investors Service has today changed its outlook to negative
from stable and affirmed the ratings of the following banks:
• The Baa3 long-term foreign and local currency deposit ratings
of Bank of Nanjing Co., Ltd.
• The Baa2 long-term foreign and local currency deposit ratings
of Bank of Ningbo Co., Ltd.
• The Ba1 long-term foreign and local currency deposit ratings
for Bank of Suzhou Co., Ltd.
• The Baa2 long-term foreign and local currency deposit ratings
of Guangzhou Rural Commercial Bank Co., Ltd.
• The Baa3 long-term foreign and local currency deposit ratings
for Shenzhen Rural Commercial Bank Corporation Limited
• The Baa1 long-term foreign and local currency deposit ratings
and local currency senior unsecured debt rating of Fubon Bank (China)
Co., Ltd. (Fubon China)
A full list of the affected ratings can be found at the bottom of this
press release.
RATINGS RATIONALE
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The China banking sector has
been affected by the shock through its exposure to highly affected regions
and industries. At the height of the outbreak in late January and
February, government restrictions and consumer caution led to a
drop in economic activity in the country. Moody's regards
the coronavirus outbreak as a social risk under its environmental,
social and governance (ESG) framework, given the substantial implications
for public health and safety.
Although economic activity in China has resumed, the recovery is
tepid and is expected to remain so, adding to existing strain on
Chinese banks' operating environment following two months of slow
economic activity. The lifting of many of the restrictions intended
to reduce the spread of the virus should aid a rebound in the second quarter
as people return to work. However, the significant supply
chain disruptions in the first quarter and weak external demand,
particularly in the second quarter, will weigh on capacity utilization.
Moody's expects the slow improvement in consumer demand will temper
the pace of recovery in the second half of the year. Fiscal easing
focused on increasing household spending will likely help lift domestic
demand in the second half of the year, but investment growth,
particularly in the private sector, will remain soft. At
the same time, Moody's expects further substantial fiscal
policy easing may be forthcoming after the next National People's
Congress meeting, and monetary and fiscal policy will support a
steady recovery for 2021.
The change in outlook to negative for the affected banks reflects Moody's
view that China's economic growth will slow in 2020 and that the
resultant risk of deterioration in the banks' credit quality has
heightened, pressuring the banks' baseline credit assessments
(BCAs).
Moody's expects credit profiles will weaken especially among banks with
less-diversified loan exposures and, for some, with
weak financial profiles relative to peer banks at the same BCA level.
Banks whose outlook has been changed to negative are those that have portfolios
that are more sensitive to economic downturns, either due to their
higher exposure to small and micro enterprises or due to less-diversified
portfolios with higher lending exposure to the most affected sectors or
regions. In addition, the regional banks operate mainly in
cities whose manufacturing and trade-related sectors are vulnerable
to a potential global contraction in demand. As a result,
these banks will face higher asset quality and profitability pressures
as the impact of coronavirus outbreak on the economy continues and intensifies.
Some of these banks have also recorded relatively strong growth in recent
years, posing unseasoned risk to their loan portfolios and pressuring
capital ratios.
The government has announced various relief programs and fiscal and monetary
measures to support entities in the real economy, including sectors
and small and micro enterprises most affected by the coronavirus outbreak.
These measures aim to reduce the economic shock by providing liquidity,
lowering operating expenses and financing costs, alleviating imminent
repayment pressure, boosting demand and supporting factories'
resumption of production activities. While these measures will
help delay the recognition of asset quality deterioration and formation
of non-performing loans (NPLs), their effectiveness in curbing
materially higher NPLs will depend on the severity and duration of the
outbreak and the implications of the outbreak for the global economy.
Rating rationale for individual banks
Bank of Nanjing
Bank of Nanjing has considerable exposure to the manufacturing and wholesale
and retail sectors, which are meaningfully affected by the coronavirus
outbreak. The bank's exposure to small and micro enterprises
is also high, implying potential asset risk if the economic slowdown
is prolonged. The bank has allocated 80% of its gross loans
in Jiangsu province and 31% in Nanjing at the end of June 2019.
While affirming its deposit ratings and BCA, Moody's continues to
factor in a high level of government support, resulting in a two-notch
uplift from the bank's ba2 BCA.
Bank of Ningbo
Bank of Ningbo has significant exposures to small and micro enterprises
and to the manufacturing and wholesale and retail sectors. It has
a relatively concentrated portfolio in Zhejiang Province, which
accounted for 63% of its loan book at the end of June 2019.
While the bank has managed the risk related to its small and micro enterprises
portfolio well historically, Zhejiang Province is a manufacturing
hub and the slowing global supply chain will test small and micro enterprises
in the region.
While affirming its deposit ratings and BCA, Moody's continues to
factor in a high level of government support, resulting in a two-notch
uplift from the bank's ba1 BCA.
Bank of Suzhou
Bank of Suzhou's asset quality is sensitive to economic downturns
and slowing global supply chains, due to its large exposure to small
and micro enterprises and the manufacturing sector, and its relatively
concentrated portfolio geographically in the city of Suzhou, a manufacturing
hub with many exported-oriented companies. Loan prime rate
reform will also pressure the bank's profitability.
While affirming its deposit ratings and BCA, Moody's continues to
factor in a moderate level of government support, resulting in a
one-notch uplift from the bank's ba2 BCA.
Guangzhou Rural Commercial Bank
Guangzhou Rural Commercial Bank has a large exposure to small and micro
enterprises and weak profitability when compared to its rated peers.
It also has sizable exposures to wholesale and retail sector, which
are more vulnerable to the impact of the coronavirus outbreak.
It has a relatively concentrated portfolio in Guangzhou city and Guangdong
Province.
The bank's loan growth has also outpaced the industry average,
pressuring its asset quality and capital ratios. While affirming
the bank's deposit ratings and BCA, Moody's continues to factor
in a high level of government support, resulting in a two-notch
uplift from the bank's ba1 BCA.
Shenzhen Rural Commercial Bank
Shenzhen Rural Commercial Bank's loan growth has consistently outpaced
the industry average over the past 3 years, resulting in unseasoned
asset risk. The bank also has large exposures to small and micro
enterprises and sizable exposures to the wholesale and retail and commercial
real estate sectors, which are more vulnerable to the impact of
the coronavirus outbreak.
While affirming the bank's deposit ratings and BCA, Moody's
continues to factor in a moderate level of government support, resulting
in a one-notch uplift from the bank's ba1 BCA.
Fubon China
Fubon China's credit concentration in large borrowers is high relative
to its capital base. The bank's rapid loan growth in 2019
implies unseasoned risk and drags down its capital ratios. The
bank also faces expansion risk due to its rapid loan growth in Central
China, including Hubei Province, Hunan Province and Henan
Province since 2018.
While affirming its deposit ratings and BCA, Moody's continues to
factor in a very high level of support from Fubon Financial Holding Co.,
Ltd. (Baa1 stable) and Taipei Fubon Commercial Bank Co Ltd (A2
stable, BCA baa2), resulting in four-notch uplift from
the bank's ba2 BCA.
Moody's does not have particular governance concerns for the affected
banks, and their governance practices follow those that are stipulated
in the act governing their respective entities.
WHAT COULD MOVE THE RATING UP/DOWN
Given the negative outlook on the affected banks' ratings,
their BCAs and deposit ratings are unlikely to be upgraded. However,
the outlook could change to stable if macro-economic conditions
in China improve and the affected banks maintain sound credit metrics
in line with their current ratings and assessments.
The banks' BCAs would face negative pressure should the operating
environment weaken materially, for example if China's economic
growth moderates further as the impact of the virus prolongs or if corporate
financial leverage increases significantly as a result of loose monetary
policies.
The banks' BCAs could also experience downward pressure if the banks'
(1) asset quality and profitability weaken materially; (2) RWAs grow
rapidly and lead to weaker capital positions; or (3) liquidity conditions
deteriorate.
For Bank of Nanjing, Bank of Ningbo, Bank of Suzhou,
Guangzhou Rural Commercial Bank and Shenzhen Rural Commercial Bank,
there could be downward pressure on their ratings should the Chinese government's
capability or willingness to support the banks weaken.
For Fubon China, its rating could be downgraded if Fubon Financial
Holding and Taipei Fubon Commercial Bank's capacity to support the
bank weakens.
Affected ratings and assessment list:
Bank of Nanjing Co., Ltd.
- Affirmed Baa3 long-term foreign and local currency deposit
ratings, outlook changed to negative from stable
- Affirmed P-3 short-term foreign and local currency
deposit ratings
- Affirmed Baa3(cr)/P-3(cr) long term/ short-term
Counterparty Risk Assessment
- Affirmed Baa3/P-3 long-term/short-term local/foreign
currency Counterparty Risk Ratings
- Affirmed ba2 BCA and Adjusted BCA
- Outlook changed to negative from stable
Bank of Ningbo Co., Ltd.
- Affirmed ba1 BCA
- Affirmed ba1 Adjusted BCA
- Affirmed Baa2 long-term foreign and local currency deposit
ratings, outlook changed to negative from stable
- Affirmed P-2 short-term foreign and local currency
deposit ratings
- Affirmed Baa2(cr)/P-2(cr) long term/ short-term
Counterparty Risk Assessment
- Affirmed Baa2/P-2 long term/ short-term foreign
and local currency Counterparty Risk Ratings
- Outlook changed to negative from stable
Bank of Suzhou Co., Ltd.
- Affirmed ba2 BCA
- Affirmed ba2 Adjusted BCA
- Affirmed Ba1 long-term foreign and local currency deposit
ratings, outlook changed to negative from stable
- Affirmed Ba1 long-term foreign and local currency issuer
ratings, outlook changed to negative from stable
- Affirmed NP short-term foreign and local currency deposit
and issuer ratings
- Affirmed Baa3(cr)/P-3(cr) long term/ short-term
Counterparty Risk Assessment
- Affirmed Baa3/P-3 long term/ short-term foreign
and local currency Counterparty Risk Ratings
- Outlook changed to negative from stable
Guangzhou Rural Commercial Bank Co., Ltd.
- Affirmed ba1 BCA
- Affirmed ba1 Adjusted BCA
- Affirmed Baa2 long-term foreign and local currency deposit
ratings, outlook changed to negative from stable
- Affirmed P-2 short-term foreign and local currency
deposit ratings
- Affirmed Baa2(cr)/P-2(cr) long term/ short-term
Counterparty Risk Assessment
- Affirmed Baa2/P-2 long term/ short-term foreign
and local currency Counterparty Risk Ratings
- Outlook changed to negative from stable
Shenzhen Rural Commercial Bank Corporation Limited
- Affirmed ba1 BCA
- Affirmed ba1 Adjusted BCA
- Affirmed Baa3 long-term foreign and local currency deposit
ratings, outlook changed to negative from stable
- Affirmed P-3 short-term foreign and local currency
deposit ratings
- Affirmed Baa2(cr)/P-2(cr) long term/ short-term
Counterparty Risk Assessment
- Affirmed Baa2/P-2 long term/ short-term foreign
and local currency Counterparty Risk Ratings
- Outlook changed to negative from stable
Fubon Bank (China) Co., Ltd.
- Affirmed Baa1 for long-term local and foreign currency
deposit ratings, outlook changed to negative from stable
- Affirmed P-2 for short-term local and foreign currency
deposit ratings
- Affirmed Baa1 for long-term local currency senior unsecured
debt, outlook changed to negative from stable
- Affirmed Baa1 for long-term local and foreign currency
Issuer Rating, outlook changed to negative from stable
- Affirmed A3/P-2 for long-term/short-term
local and foreign currency Counterparty Risk Ratings
- Affirmed A3(cr)/P-2(cr) for long-term/short-term
Counterparty risk assessment
- Affirmed baa1 for Adjusted BCA
- Affirmed ba2 for BCA
- Outlook changed to negative from stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
BANK PROFILES
Bank of Nanjing is a city commercial bank headquartered in Nanjing,
Jiangsu Province. The bank reported total assets of RMB1,348
billion as of 30 June 2019.
Bank of Ningbo is a city commercial bank headquartered in Ningbo,
Zhejiang Province. The bank reported total assets of RMB1,205
billion as of 30 June 2019.
Bank of Suzhou is a city commercial bank headquartered in Suzhou,
Jiangsu Province. It reported total assets of RMB341 billion as
of the end of June 2019.
Guangzhou Rural Commercial Bank is a rural commercial bank headquartered
in Guangzhou city, Guangdong Province. It reported total
assets of RMB853 billion as of the end of June 2019.
Shenzhen Rural Commercial Bank is a rural commercial bank headquartered
in Shenzhen with reported assets totaled RMB316.9 billion at the
end of 2018.
Fubon China is headquartered in Shanghai. It reported total assets
of RMB71 billion as of the end of 2018.
The local market analyst for Bank of Nanjing Co., Ltd.
is Yan Li, +86.10.6319.6561
The local market analyst for Bank of Ningbo Co., Ltd.,
Guangzhou Rural Commercial Bank Co., Ltd., Bank
of Suzhou Co., Ltd. and Fubon Bank (China) Co.,
Ltd. ratings is Yulia Wan, +86 (21) 2057 4017.
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
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entities are participating and the rated entities or their agent(s)
generally provide 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.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
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
