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Rating Action:

Moody's rates Aaa.ar to ICBC Argentina's Class VII inflation-linked ("UVA") senior notes

 The document has been translated in other languages

17 Jan 2018

Buenos Aires City, January 17, 2018 -- Moody's Latin America Agente de Calificación de Riesgo (MLA) has today assigned a Ba3 global local currency senior unsecured debt rating and an Aaa.ar Argentina national scale senior debt rating to Industrial and Commercial Bank of China (Argentina) S.A. (ICBC Argentina)'s Class VII inflation linked ("UVA") senior notes. The notes will be due 2020 and will amount up to ARS 1,000 million equivalent, issued under the bank's existing multi-currency USD250 million senior unsecured program. The outlook on ICBC Argentina's senior unsecured debt rating is stable.

The following ratings were assigned to ICBC Argentina's Class VII local currency senior unsecured note issuances:

. Global local currency senior unsecured debt rating of Ba3; stable outlook

. Argentinean national scale local currency senior unsecured debt rating of Aaa.ar; stable outlook

RATINGS RATIONALE

ICBC Argentina's ratings consider the very high probability that the bank will receive financial support from its foreign parent, Industrial and Commercial Bank of China Limited (ICBC, A1 stable, baa2), in an event of stress. This very high probability of parental support offsets risks stemming from Argentina's operating environment, which while improving has historically been very volatile. As a result of the still uncertain operating environment, and considering banks' close credit linkages with their sovereigns, ICBC Argentina's standalone baseline credit assessment is constrained at the level of Argentina's B2 sovereign rating despite the bank's well-established and diversified franchise, adequate capitalization levels, and conservative risk management guidelines.

The very high probability of parental support considers the parent's 80% ownership, shared branding, the bank's track record of conservative dividend payouts, the strategic fit of the Argentine subsidiary given China's growing economic links with Argentina, and the parent's strong public commitment to supporting its overseas subsidiaries. Although parent ICBC's own debt ratings benefit from a very high probability of support from the government of China given the bank's full state-ownership, Moody's does not believe that any financial support from the Chinese government to the bank would be permitted to flow through to the Argentine operation. Hence, Moody's uses ICBC's baseline credit assessment as the measure of its capacity to support its subsidiary, rather than its debt or deposit ratings.

While ICBC Argentina's non-performing loans remain below the 2% industry average, asset risks have been gradually rising since 2016 as the bank's risk appetite has increased in line with improving economic conditions. In September 2017, NPLs ratio stood at 1.8%, up from 1.7% in 2016 and 1.4% in 2015 and are expected to increase further driven by rapid loan growth. ICBC Argentina's loan book grew 28.4% in the nine months ended in September 2017, representing real growth close to 6%. However, risks associated with the acceleration of loan growth and limited credit history in Argentina are partially mitigated by loan loss reserves that covered NPLs by an adequate 1.3 times.

While rapid loan growth boosted net interest income by 8.5% in the nine months ended September 2017, the net interest margin nevertheless declined sharply to 10.7%, from 13.1% in calendar year 2016, reflecting the increasing competition in consumer lending, which is ICBC Argentina's main focus of expansion. Together with a drop in earnings from securities, this drove a drop in net income to tangible banking assets to 2.5% in September, from 3.4% at the end of 2016. While this ratio nevertheless remains high by global standards, earnings figures in Argentina are distorted by the high rate of inflation.

However, thanks to a low dividend payout ratio, the bank's capitalization continues to provide adequate loss absorption, with tangible common equity equal to 10.4% of adjusted risk weighted assets in September 2017, despite rapid loan growth, supporting the bank's expansion strategy.

WHAT COULD CHANGE THE RATING UP/DOWN

The Ba3 global scale rating would face upward pressure if either Argentina's sovereign rating or ICBC's BCA were upgraded.

Conversely, the global scale rating would face downward pressure if either the government of Argentina or ICBC were to be downgraded, or if there were indications of a decrease in the parent's willingness to provide support. The national scale rating could also face downward pressure if the parent were downgraded or appeared less willing to provide support. However, at this point, both the government of Argentina and ICBC have stable outlooks and there is currently no reason to believe that the parent's willingness to support ICBC may be decreasing.

The principal methodology used in these ratings was Banks published in September 2017. Please see the Rating Methodologies page on www.moodys.com.ar for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.

Industrial and Commercial Bank of China (Argentina) S.A. is headquartered in Buenos Aires, with assets of ARS93.49 billion and equity of ARS10.79 billion as of 30 September 2017.

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.ar.

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.

For issuers domiciled in Argentina, the regulatory report related to this rating action is available on www.moodys.com.ar.

Please see www.moodys.com.ar 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.ar for additional regulatory disclosures for each credit rating.

Ceres Lisboa
Senior Vice President
Financial Institutions Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Latin America ACR
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: 800 666 3506
Client Service: 1 212 553 1653

No Related Data.
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