Hong Kong, June 18, 2015 -- Moody's Investors Service has today placed on review for upgrade China
Merchants Bank Co., Ltd.'s (CMB) long-term
deposit rating of Baa1 and China Guangfa Bank Co., Ltd.'s
(CGB) long-term deposit rating of Ba2. Moody's has
also affirmed the short-term deposit ratings, baseline credit
assessment (BCA) and adjusted BCA of the two banks, and affirmed
CMB's short-term Senior Unsecured Medium Term Notes (MTN)
program at (P)P-2, while placing on review for upgrade CMB's
long-term Senior Unsecured MTN program of the bank and its branches.
The review for upgrade reflects Moody's re-assessment of
government support for these two banks. Moody's review will
assess whether to increase the amount of support included in the two banks'
ratings in the context of their market position and shareholding structure,
and will be concluded in the next three months.
At the same time, Moody's has affirmed the ratings and withdrawn
the outlooks on all the junior securities issued by Industrial and Commercial
Bank of China Ltd. (ICBC) and Bank of China Limited (BOC).
Moody's has withdrawn the outlooks on all junior instrument ratings for
its own business reasons. Please refer to Moody's Investors Service's
Policy for Withdrawal of Credit Ratings, available on its website,
www.moodys.com.
Outlooks, which provide an opinion on likely rating direction over
the medium term, are now assigned only to long-term deposit,
long-term issuer and senior unsecured debt ratings.
Meanwhile, Moody's assigned Counterparty Risk Assessments
(CR Assessments) to 14 Chinese banks and their branches following the
publication of the rating agency's new bank rating methodology published
on 16 March 2015.
A list of the affected ratings and CR Assessments can be found at the
end of this press release.
RATINGS RATIONALE
REVIEW FOR UPGRADE FOR CMB AND CGB'S DEPOSIT RATINGS
In assessing how much extraordinary government support a particular Chinese
bank would receive under a situation of stress, Moody's usually
considers two broad dimensions for Chinese banks. The first is
potential contagion risk which captures the risk that the unmitigated
failure of the bank would trigger panic episodes and undermine general
confidence in the broader financial system. And the second is the
form and extent of public involvement, which reflects the economic
interests the government (or government-related institutions) would
miss out on if a bank were to cease as a going concern.
The rating actions for CMB reflect a re-evaluation of the importance
of the bank to the financial system as its deposit market share has increased
over time and it is a major affiliate of the China Merchants Group Ltd.
(unrated), a state-owned conglomerate. Also,
its failure could cause high potential contagion risk as it has the largest
proportion of retail deposits in its deposit mix among rated joint-stock
commercial banks.
Moody's review of CMB's deposit ratings will consider the likeliness
of government support due to CMB's increasing market share and large
retail deposit base. At the same time, the review will consider
the financial strength of its major shareholder, China Merchants
Group Ltd, and its strategic linkage with the government and CMB.
This rating action for CGB reflects the re-evaluation of the potential
contagion risk of CGB's failure to the economy of Guangdong Province
and the impact on the broader national economy due to its national presence
and shares majority-owned by SOEs. CGB is the only national
joint-stock commercial banks based in Guangdong, and has
a 3.2% deposit market and 4.6% loans market
share in the region at end-September 2014. It is also ranks
first among financial institutions in terms of tax contribution to the
Guangdong Provincial government. Being a national joint-stock
commercial bank, 72% of its shares were owned by the government
or government-related entities by end-2014.
Moody's review of CGB's deposit ratings will consider the linkage
between the bank and the local government and economy, as the bank
is a major tax contributor to the local economy, and has a higher
market share in deposits and loans compared to many other joint-stock
commercial banks. At the same time, the review will consider
the willingness of the central and local governments to support the bank,
as the failure of the bank could harm market perceptions of the governments'
own creditworthiness and policy creditability. The review will
also consider the government support channeling from its major SOE shareholders,
by evaluating their financial strengths and their strategic linkages with
the government and CGB.
AFFIRMATION OF RATINGS ON JUNIOR SECURITIES
Chinese banks' adjusted BCAs, which measure the probability
of a bank requiring support to avoid default beyond the support provided
by its affiliates, are unaffected by the implementation of Moody's
new bank rating methodology.
Specifically, the adjusted BCAs for BOC and ICBC reflect Moody's
assessment of their macro profiles ("Strong-" for BOC
and "Moderate+" for ICBC) and their good core financial
scores. These two banks have satisfactory solvency ratios and strong
liquidity metrics.
BOC's macro profile of "Strong-," is an
asset-weighted average of Moody's assessment on China ("Moderate+),
Hong Kong (Strong+) and World (Strong).
ICBC's macro profile of "Moderate+" reflects Moody's
assessment on China, as overseas operations accounted for less than
10% of its total consolidated assets.
In addition, because going-concern resolutions are not part
of the public policy framework in China, Moody's applies a
"Basic Loss Given Failure" approach in rating Chinese banks'
junior securities. Based on this approach, the notching from
an adjusted baseline credit assessment for contractual non-viability
subordinated debt and preference shares remains unchanged.
Moody's has affirmed the ratings on ICBC's and BOC's
junior securities because the two key factors underpinning these ratings,
as discussed above, are unaffected by the implementation of the
new bank rating methodology.
Moody's currently does not assume government support would be available
for Basel III-compliant subordinated debt and preference shares
issued by Chinese banks, as these securities are meant to absorb
loss before any extraordinary government bailout.
The ratings on the junior securities could be raised if the issuing bank's
adjusted BCA is raised, or if Moody's assesses that a government
bailout would be forthcoming before these securities absorb any loss.
The adjusted BCAs for BOC and ICBC could come under upward pressure if
(1) they maintain their asset quality, profitability and liquidity
profile while strengthening their capital position; (2) economic
rebalancing proceeds smoothly without producing significant financial
or growth shocks.
On the other hand, the ratings on the junior securities could be
lowered if the issuing bank's adjusted BCA is lowered, or
Moody's assesses that these securities would need to absorb any
loss before the bank becomes non-viable.
The adjusted BCAs for BOC and ICBC could come under downward pressure
if (1) the Chinese authorities become less inclined to use policy tools
to support the bank's credit profile; (2) China's economic growth
slows substantially, leading to significant pressure on the bank's
asset quality; (3) aggressive market reform is implemented,
materially reducing the bank's profitability; (4) core Tier 1 capital
ratio declines significantly, reducing loss cushion for creditors.
ASSIGNMENT OF COUNTERPARTY RISK ASSESSMENTS
CR Assessments are opinions of how counterparty obligations are likely
to be treated if a bank fails and are distinct from debt and deposit ratings
in that CR Assessments (1) consider only the risk of default rather than
expected loss; and (2) apply to counterparty obligations and contractual
commitments rather than debt or deposit instruments. The CR assessment
is an opinion of the counterparty risk related to a bank's covered bonds,
contractual performance obligations (servicing), derivatives (e.g.,
swaps), letters of credit, guarantees and liquidity facilities.
The CR Assessment takes into account the issuer's standalone strength
as well as the likelihood of affiliate and government support in the event
of need, reflecting the anticipated seniority of these obligations
in the liabilities hierarchy. The CR Assessment also incorporates
other steps authorities can take to preserve the key operations of a bank
should it enter a resolution.
For the Chinese banks, the CR Assessment is positioned, prior
to government support, at one notch above the Adjusted BCA,
reflecting Moody's view that its probability of default is lower than
those of senior unsecured debt and deposits in absence of government support.
For the Chinese banks, except for subsidiaries of foreign banks,
the CR Assessments also benefit from government support, broadly
in line with Moody's support assumptions on deposits. This reflects
Moody's view that any support provided by governmental authorities to
a bank, which benefits deposits, is very likely to benefit
operating activities and obligations reflected by the CR Assessment as
well, consistent with Moody's belief that governments are likely
to maintain such operations as a going-concern in order to reduce
contagion and preserve a bank's critical functions.
As a result, the CR Assessments for Chinese banks could be positioned
at one notch higher than their deposit ratings. However,
for Chinese banks whose deposit ratings already incorporate a very high
or high level of government support, their CR Assessments are positioned
at the deposit ratings, reflecting Moody's view that the probability
of default on their operating liabilities would not be materially different
from that of deposits after government support and in the event of bank
resolution. In arriving at this view, Moody's has taken
into account the fact that China does not have a transparent operational
resolution regime that creates confidence that operating liabilities have
a lower probability of default for banks whose deposit ratings also benefit
from a material amount of government support. Also, Moody's
judgment is that supporting deposits is likely to be one of the Chinese
government's highest priorities when it provides extraordinary support
to prevent a bank failure.
By contrast, in the case of four banks where there is lower probability
of government support, Moody's has positioned the CR Assessment
one notch higher than the deposit rating. These banks are:
HSBC Bank (China) Co., Ltd. (A1/P-1,
BCA baa3), Hang Seng Bank (China) Ltd. (A2/P-1,
BCA ba1), Fubon Bank (China) Co., Ltd.(Baa1/P-2,
BCA ba2) and Ping An Bank Co., Ltd.(Baa2/P-2,
BCA ba2). All of these bank ratings benefit from affiliate support
in their ratings, from their foreign bank parents in the case of
the first three and from the Ping An Insurance (Group) Company of China,
Ltd. in the case of Ping An Bank Co., Ltd.
Moody's has not assigned CR Assessments to China Merchants Banks
Co., Ltd and China Guangfa Bank Co., Ltd.,
because the government support assumptions incorporated in their deposit
ratings are under review.
LIST OF AFFECTED RATINGS:
Bank of China Limited (Lead analyst: Christine Kuo)
• Subordinated debt affirmed at Baa3(hyb) with no outlook
• Pref. Stock Non-cumulative affirmed at Ba2 (hyb)
with no outlook
China Merchants Bank Co., Ltd. (Lead analyst:
Sean Hung)
• Long-term bank deposits at Baa1 placed on review for upgrade
• Long-term senior unsecured MTN at (P)Baa1 placed on review
for upgrade
• Short-term bank deposits affirmed at P-2
• Short-term senior unsecured MTN affirmed at (P)P-2
• BCA and adjusted BCA affirmed at baa3
China Merchants Bank Co., Ltd., Hong Kong Branch
(Lead analyst: Sean Hung)
• Long-term senior unsecured MTN at (P)Baa1 placed on review
for upgrade
• Long-term senior unsecured debt at Baa1 placed on review
for upgrade
China Merchants Bank Co., Ltd., Luxembourg Branch
(Lead analyst: Sean Hung)
• Long-term Senior unsecured MTN at (P)Baa1 placed on review
for upgrade
• Short-term Senior unsecured MTN affirmed at (P)P-2
China Merchants Bank Co., Ltd., New York Branch
(Lead analyst: Sean Hung)
• Long-term senior unsecured MTN at (P)Baa1 placed on review
for upgrade
• Long-term senior unsecured debt at Baa1 placed on review
for upgrade
• Short-term senior unsecured MTN affirmed at (P)P-2
China Merchants Bank Co., Ltd., Singapore Branch
(Lead analyst: Sean Hung)
• Long-term senior unsecured MTN at (P)Baa1 placed on review
for upgrade
• Short-term senior unsecured MTN affirmed at (P)P-2
China Guangfa Bank Co., Ltd. (Lead analyst:
Sean Hung)
• Bank Deposits at Ba2 placed on review for upgrade
• Short-term bank deposits affirmed at NP
• BCA and adjusted BCA affirmed at ba3
Industrial and Commercial Bank of China Ltd. (Lead analyst:
Christine Kuo)
• Pref. Stock Non-cumulative affirmed at Ba2 (hyb)
with no outlook
LIST OF CR ASSESSMENTS:
• Agricultural Bank of China Limited and its New York, Dubai
and Hong Kong branches: A1(cr)/P-1(cr) (Lead analyst:
Christine Kuo)
• Bank of China Limited and its Frankfurt, Hong Kong,
London, Luxembourg, Paris, Singapore, Sydney,
Taipei and Tokyo branches: A1(cr)/P-1(cr) (Lead analyst:
Christine Kuo)
• Bank of Communications Co., Ltd. And its Hong
Kong branch:A2(cr)/P-1(cr) (Lead analyst: Sean Hung)
• Bank of Ningbo Co., Ltd. :Baa2(cr)/P-2(cr)
(Lead analyst: Sean Hung)
• Bank of Shanghai Co., Ltd. :Baa3(cr)/P-3(cr)
(Lead analyst: Sean Hung)
• China CITIC Bank Corporation Limited: Baa1(cr)/P-2(cr)
(Lead analyst: Christine Kuo)
• China Construction Bank Corporation and its Frankfurt, Hong
Kong and New York branches:A1(cr)/P-1(cr) (Lead analyst:
Christine Kuo)
• China Everbright Bank Company Limited:Baa2(cr)/P-2(cr)
(Lead analyst: Christine Kuo)
• Fubon Bank (China) Co., Ltd.:A3(cr)/P-2(cr)
(Lead analyst: Ginger Kao)
• HSBC Bank (China) Company Limited:Aa3(cr)/P-1(cr)
(Lead analyst: Sean Hung)
• Hang Seng Bank (China) Limited:A1(cr)/P-1(cr) (Lead
analyst: Sean Hung)
• Industrial and Commercial Bank of China Ltd. And its Dubai,
Luxembourg, New York, Singapore and Sydney branches:
A1(cr)/P-1(cr) (Lead analyst: Christine Kuo)
• Ping An Bank Co., Ltd.:Baa1(cr)/P-2(cr)
(Lead analyst: Sean Hung)
• Shanghai Pudong Development Bank Co., Ltd.:
Baa1(cr)/P-2(cr) (Lead analyst: Sean Hung)
The principal methodology used in these ratings was Banks published in
March 2015. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
The following information supplements Disclosure 10 ("Information
Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J)
of SEC Rule 17g-7") in the regulatory disclosures made at
the ratings tab on the issuer/entity page on www.moodys.com
for each credit rating as indicated:
Moody's was not paid for services other than determining a credit
rating in the most recently ended fiscal year by the person(s) that paid
Moody's to determine this credit rating.
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 analyst and the Moody's legal entity that has issued the ratings
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.
Christine Kuo
VP - Senior Credit Officer
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
SUBSCRIBERS: (852) 3551-3077
Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077
Moody's take rating actions on four Chinese banks; assigns CR assessments to fourteen banks
