Hong Kong, October 17, 2016 -- Moody's Investors Service has taken the following rating actions on nine
Chinese banks:
- Placed China Guangfa Bank Co., Ltd.'s
deposit rating on review for upgrade, affirmed the deposit ratings
for three banks, and downgraded the long-term deposit ratings
of five banks;
- Affirmed baseline credit assessment (BCA) for two banks and downgraded
the BCA on seven banks;
- Changed the outlook to stable from negative for seven banks,
maintained a negative outlook on one bank, and placed the rating
of China Guangfa Bank on review for upgrade; and
- Affirmed the Counterparty Risk Assessments (CRAs) for two banks,
downgraded the long-term CRAs of six banks, and placed China
Guangfa Bank's CRA on review for upgrade.
A list of the affected ratings, rating inputs and CRAs can be found
at the end of this press release.
RATINGS RATIONALE
Common to all these rating actions are increasing pressure on these banks'
standalone creditworthiness owing to growing risks in their funding profiles,
and increasing asset quality pressure, as reflected in their latest
full-year 2015 and half-year 2016 financial results.
The assessment followed Moody's change of the Macro Profile for
China to "Moderate" from "Moderate +" in
March 2016 which implied downward pressure on the standalone profiles
of Chinese banks. The Macro Profile change reflected the continued
rise in leverage in the Chinese economy from an already high level.
The deteriorating funding profile and asset risks are exacerbated by these
banks' stronger asset growth compared to the big state-owned
banks in general, which exposes them to greater liquidity risks
and unseasoned lending and quasi-lending portfolios against the
backdrop of the current moderation in China's economic growth.
There has been an increasing divergence between the big state-owned
Chinese banks and mid- and small-sized Chinese banks in
their funding and liquidity profiles.
While the big state-owned banks have continued to enjoy a stable
funding profile and have adequate liquid resources to cover market funds,
mid- and small-sized banks in general are showing increasing
usage of wholesale funds, which have generally proven a less stable
funding source in recent years.
The current rise in wholesale funding also tends to be channeled through
short-term instruments and entails higher funding costs; two
features that could add to the risks for the mid- and small-sized
banks involved.
Meanwhile, most mid- and small-sized banks involved
have channeled these short-term, confidence-sensitive
funds to support illiquid assets, including loans, as well
as investments in loans and receivables; adding to pressure on their
liquidity management.
The rapid growth in the investments in loans and receivables for the mid-
and small-sized banks involved is a source of asset risk,
besides their loan portfolios. The key credit issues of these investments
include: (1) their general use of pass-through channels and
credit enhancements, which obscure the true extent of the banks'
exposure to ultimate borrowers; (2) the associated lower provisioning
and capital requirements, which lower the banks' resilience
to potential credit shocks; and (3) the increased system interconnectedness
implied by the widespread use of credit enhancement.
DETAILED RATING ACTIONS ON DEPOSIT RATINGS AND OUTLOOK
Moody's placed China Guangfa Bank's deposit rating on review
for upgrade.
• Moody's affirmed China Guangfa Bank's BCA and placed
its deposit ratings on review for upgrade. Moody's affirmation
of its BCA reflects the fact that its liquidity position has remained
relatively stable, despite deteriorating asset quality, a
weakening capital position and profitability. Moody's placed
its deposit ratings on review for upgrade, as we consider the potential
of increasing external support, given China Life Insurance Co Ltd's
(China Life, insurance financial strength Aa3 negative) completion
of the acquisition of an additional 23.7% stake in China
Guangfa Bank in August 2016. Looking ahead, Moody's
will review the following in deciding the level of external support and
the allocation of support levels between China Life and the government:
1) the strategic importance of China Guangfa Bank to China Life;
2) further cooperation and integration between China Guangfa Bank and
China Life; 3) whether China Life's shareholding in the bank
will increase further; 4) whether the regulatory resolution framework
for banks and insurance groups are aligned to allow support to flow to
the subsidiary banks of insurance groups; and 5) the source and extent
of support, whether from China Life or the government, in
a situation of bank distress.
Moody's affirmed the deposit ratings of two banks, while changing
their outlooks to stable from negative. These two banks are China
Merchants Bank Co., Ltd. (CMB) and Ping An Bank Co.,
Ltd (PAB).
• China Merchants Bank — Moody's downgraded its BCA despite
its more resilient performance in the first half of 2016 but affirmed
its deposit ratings. Our downgrade of its BCA reflected the continued
pressure on its asset quality due to the slowdown in China's economy,
despite the bank's efforts to slow down its asset growth and decrease
its exposure to high risk sectors and investments in non-standard
products. Profitability will also come under pressure, owing
to ongoing pressure on net interest margin and rising credit costs.
Meanwhile, the two-notch rating uplift incorporated in its
previous deposit rating was lower than the three notches afforded to some
other joint-stock commercial banks with strong SOE affiliations.
As we downgraded the bank's BCA, we brought up its support
level to align with its peers, given its asset scale and its partial
ownership by China Merchants Group Limited Co. (unrated),
a wholly state-owned conglomerate.
• Ping An Bank — Moody's downgraded its BCA but affirmed its
deposit ratings, due to an increase in affiliate support,
according to Moody's Joint Default Analysis. In addition,
we consider the ample financial resources from Ping An Life Insurance
Company of China, Ltd. (insurance financial strength A2 stable)
and Ping An Property & Casualty Insurance Company of China,
Ltd. (insurance financial strength A2 stable) which can be utilized
to support the bank, if needed. Moody's also sees an
increased integration of the bank's operations with other subsidiaries
of Ping An Insurance (Group) Company of China, Ltd. (unrated),
which not only testifies to the very high level of affiliate support but
also benefits its deposit base and fee-based incomes. The
downgrade of its BCA reflects the continued pressure in asset quality,
as reflected in its increasing NPL ratio and fast increasing 90+
days delinquencies formation rate. Moody's believes that
its capital position will continuously be challenged by fast lending growth,
and its profitability will be negatively impacted by high funding costs
and increasing credit costs.
Moody's affirmed the deposit rating of China Everbright Bank Company
Limited, while maintaining its outlook at negative.
• China Everbright Bank — Moody's affirmation of its
BCA reflects the positive impact of the planned capital injection by China
Everbright Group (unrated) and the bank's abundant liquid resources,
despite its rapid asset growth and increasing reliance on wholesale market
funds. The negative outlook on China Everbright Banks' ratings
reflects ongoing pressures on the bank's internal capital generation
capability and challenges to liquidity management due to its rapid asset
expansion. The bank's assets increased 18.9%
in the first half of 2016 from the level seen at end-2015,
driven by its aggressive investments in loans and receivables.
As a result, its common equity tier 1 (CET1) ratio fell to 8.54%
at end-June 2016 from 9.24% at end-2015,
and the bank has materially increased its reliance on interbank funding.
Moody's downgraded the long-term deposit ratings of five
banks, while changing their outlook to stable from negative.
The five banks are Industrial Bank Co., Ltd.,
China CITIC Bank Corporation Limited, Shanghai Pudong Development
Bank Co., Ltd. (SPDB), Bank of Shanghai Co.,
Ltd. and Bank of Ningbo Co., Ltd.
• Industrial Bank - Moody's downgraded its BCA and deposit
ratings, as a result of its increasing reliance on market funds
that is already at a very high level, continued pressure on asset
quality due to China's economic slowdown and its large amounts of
investments in loans and receivables, as well as its relatively
weak capital position. These are mitigated by the bank's
rich experiences in managing interbank liquidity and its high NPL coverage
ratio, and the proposed RMB26 billion equity placement announced
in July 2016.
• China CITIC Bank - Moody's downgraded its BCA and
deposit ratings, as a result of its increasing reliance on market
funds, declining CET1 ratio due to the rapid asset growth,
and continued pressure in asset quality due to China's economic
slowdown. On the other hand, the bank benefits from its solid
deposit base on the back of its strong corporate banking franchise and
good relationships with large state-owned enterprises.
• SPDB -- Moody's downgraded its BCA and deposit ratings,
as a result of its increasing usage of market funds which is already at
a relatively higher level than many other joint-stock banks peers,
continued pressure on asset quality due to China's economic slowdown,
and the bank's relatively weak capital compared to its peer group.
On the other hand, the bank's NPL coverage ratio remains high
and its profitability is better than most of its peers.
• Bank of Shanghai -- Moody's downgraded its BCA and deposit
ratings, as a result of its increasing usage of wholesale funding,
particularly as it has grown its investments in loans and receivables.
On the other hand, the bank has sufficient liquid resources and
an established deposit franchise in Shanghai. The bank's
capital position will also be strengthened after its planned IPO.
• Bank of Ningbo - Moody's downgraded its BCA and deposit
ratings, as a result of the pressures on its capital ratio due to
rapid asset growth and on profitability due to its narrowing net interest
margins and growing credit costs. Although the bank reduced its
use of market funds in the first half of 2016, market funds to tangible
banking assets remains relatively high. On the other hand,
as it focuses on providing integrated services to small- and medium-sized
companies, its deposit concentration risk is low and demand deposit
proportion is high. The bank's asset quality remains healthy,
although it will continuously be tested by China's economic slowdown
and its rapid asset growth.
STABLE OUTLOOKS FOR SEVEN BANKS
Moody's changed the outlooks to stable from negative for seven banks in
this rating action. The seven banks are China Merchants Bank,
Ping An Bank, Industrial Bank, China CITIC Bank, SPDB,
Bank of Shanghai and Bank of Ningbo.
The stable outlooks suggest that these banks do not face immediate pressure
on their BCAs after the BCA downgrades. Also, the level of
uplift due to government support is unlikely to change in coming years
for these banks despite the evolving nature of government policy.
We believe that the government's willingness to provide support
is unchanged because of these banks' large size and systemic importance,
as well as the authorities' policy priority of maintaining systemic
stability and public confidence in the banking system. And since
we would only conclude that the government's ability to support
these banks was sufficiently impaired to warrant a downgrade of these
banks -- in the event that the sovereign was downgraded
by more than two notches, which would be unusual where a negative
outlook is applied -- we have decided to change these ratings
outlooks to stable.
WHAT COULD CHANGE THE RATING UP/DOWN FOR BANKS WITH STABLE OUTLOOK
For these seven banks, their BCAs and deposit ratings are unlikely
to rise in the coming 12-18 months due to the weakening operating
environment. However, their BCAs could experience upward
pressure if (1) their operating environment, as measured by China's
Macro Profile, improves; or (2) they maintain their asset quality
and profitability, while strengthening their capital positions and
improving their liquidity profiles.
These banks' BCAs and deposit ratings could experience downward
pressure if (1) their operating environment weakens materially,
i.e., if China's economic growth continues to slow,
or corporate financial leverage continues to rise; (2) their asset
quality indicators deteriorate, as measured by rising NPLs or rising
impairment charges; (3) their capital positions weaken due to rapid
asset growth; or (4) their reliance on wholesale funding continues
to increase.
In addition, given the level of external support incorporated in
the banks' deposit ratings, any indication of reduced support
from the government or from the parent company would be negative.
WHAT COULD CHANGE THE RATING UP/DOWN FOR CHINA EVERBRIGHT BANK
In view of the negative outlook on the ratings for China Everbright Bank,
Moody's does not expect any upward ratings pressure. A return of
the ratings outlook to stable could be considered if:
1) Its asset quality — as measured by new problem loan formation
— and profitability — as measured by return on average assets
— remain resilient, despite the slower rate of economic growth
in China; 2) its capital position strengthens, such that its
CET1 capital ratio improves; or 3) its liquidity profile improves,
such that its reliance on market funds decreases.
LIST OF AFFECTED RATINGS:
China Merchants Bank Co., Ltd. (Lead analyst:
Sean Hung)
• Long-term (local/foreign currency) bank deposit rating affirmed
at Baa1, outlook changed to stable from negative
• Short-term (local/foreign currency) bank deposit rating
affirmed at P-2
• Long-term/short-term (foreign currency) senior unsecured
MTN affirmed at (P)Baa1/(P)P-2
• BCA downgraded to ba1 from baa3
• Adjusted BCA downgraded to ba1 from baa3
• Long-term CRA downgraded to Baa1(cr) from A3(cr)
• Short-term CRA affirmed at P-2(cr)
• Outlook changed to stable from negative
China Merchants Bank Co., Ltd., Hong Kong Branch
(Lead analyst: Sean Hung)
• Long-term/short-term (foreign currency) senior unsecured
MTN affirmed at (P)Baa1/(P)P-2
• Long-term (foreign currency) senior unsecured debt rating
affirmed at Baa1, outlook changed to stable from negative
• Long-term CRA downgraded to Baa1(cr) from A3(cr)
• Short-term CRA affirmed at P-2(cr)
• Outlook changed to stable from negative
China Merchants Bank Co., Ltd., Luxembourg Branch
(Lead analyst: Sean Hung)
• Long-term/short-term (foreign currency) senior unsecured
MTN affirmed at (P)Baa1/(P)P-2
• Long-term CRA downgraded to Baa1(cr) from A3(cr)
• Short-term CRA affirmed at P-2(cr)
• Outlook changed to stable from negative
China Merchants Bank Co., Ltd., New York Branch
(Lead analyst: Sean Hung)
• Long-term/short-term (local currency) senior unsecured
MTN affirmed at (P)Baa1/(P)P-2
• Long-term (local currency) senior unsecured debt rating
affirmed at Baa1, outlook changed to stable from negative
• Long-term CRA downgraded to Baa1(cr) from A3(cr)
• Short-term CRA affirmed at P-2(cr)
• Outlook changed to stable from negative
China Merchants Bank Co., Ltd., Singapore Branch
(Lead analyst: Sean Hung)
• Long-term/short-term (foreign currency) senior unsecured
MTN affirmed at (P)Baa1/(P)P-2
• Long-term CRA downgraded to Baa1(cr) from A3(cr)
• Short-term CRA affirmed at P-2(cr)
• Outlook changed to stable from negative
Industrial Bank Co., Ltd. (Lead analyst: David
Yin)
• Long-term (local/foreign currency) bank deposit rating downgraded
to Baa3 from Baa2, outlook changed to stable from negative
• Short-term (local/foreign currency) bank deposit rating
downgraded to P-3 from P-2
• Long-term/short-term (foreign currency) senior unsecured
MTN downgraded to (P)Baa3/(P)P-3 from (P)Baa2/(P)P-2
• BCA downgraded to ba3 from ba2
• Adjusted BCA downgraded to ba3 from ba2
• CRA downgraded to Baa3(cr)/P-3(cr) from Baa2(cr)/P-2(cr)
• Outlook changed to stable from negative
Industrial Bank Co., Ltd., Hong Kong Branch
(Lead analyst: David Yin)
• Long-term/short-term (foreign currency) senior unsecured
MTN downgraded to (P)Baa3/(P)P-3 from (P)Baa2/(P)P-2
• Long-term (foreign currency) senior unsecured debt rating
downgraded to Baa3 from Baa2, outlook changed to stable from negative
• CRA downgraded to Baa3(cr)/P-3(cr) from Baa2(cr)/P-2(cr)
• Outlook changed to stable from negative
China CITIC Bank Corporation Limited (Lead analyst: David Yin)
• Long-term (foreign currency) bank deposit rating downgraded
to Baa2 from Baa1, outlook changed to stable from negative
• Short-term (foreign currency) bank deposit rating affirmed
at P-2
• BCA downgraded to ba2 from ba1
• Adjusted BCA downgraded to ba2 from ba1
• Long-term CRA downgraded to Baa2(cr) from Baa1(cr)
• Short-term CRA affirmed at P-2(cr)
• Outlook changed to stable from negative
China Everbright Bank Company Limited (Lead analyst: David Yin)
• Long-term (foreign currency) bank deposit rating affirmed
at Baa2 with negative outlook
• Short-term (foreign currency) bank deposit rating affirmed
at P-2
• BCA affirmed at ba2
• Adjusted BCA affirmed at ba2
• CRA affirmed at Baa2(cr)/P-2(cr)
• Outlook maintained at negative
Shanghai Pudong Development Bank Co., Ltd. (Lead analyst:
David Yin)
• Long-term (local/foreign currency) bank deposit rating downgraded
to Baa2 from Baa1, outlook changed to stable from negative
• Short-term (local/foreign currency) bank deposit rating
affirmed at P-2
• BCA downgraded to ba2 from ba1
• Adjusted BCA downgraded to ba2 from ba1
• Long-term CRA downgraded to Baa2(cr) from Baa1(cr)
• Short-term CRA affirmed at P-2(cr)
• Outlook changed to stable from negative
Shanghai Pudong Development Bank Co., Ltd.,
Hong Kong Branch (Lead analyst: David Yin)
• Long-term (foreign currency) senior unsecured MTN downgraded
to (P)Baa2 from (P)Baa1
• Short-term (foreign currency) senior unsecured MTN affirmed
at (P)P-2
• Long-term (foreign currency) senior unsecured debt rating
downgraded to Baa2 from Baa1, outlook changed to stable from negative
• Long-term CRA downgraded to Baa2(cr) from Baa1(cr)
• Short-term CRA affirmed at P-2(cr)
• Outlook changed to stable from negative
Ping An Bank Co., Ltd (Lead analyst: Sean Hung)
• Long-term (foreign currency) bank deposit rating affirmed
at Baa2, outlook changed to stable from negative
• Short-term (foreign currency) bank deposit rating affirmed
at P-2
• BCA downgraded to ba3 from ba2
• Adjusted BCA affirmed at baa3
• CRA affirmed at Baa1(cr)/P-2(cr)
• Outlook changed to stable from negative
China Guangfa Bank Co., Ltd. (Lead analyst:
Sean Hung)
• Long-term/short-term (foreign currency) bank deposit
ratings at Ba1/NP on review for upgrade
• BCA affirmed at ba3
• Adjusted BCA at ba3 on review for upgrade
• CRA at Ba1(cr)/NP(cr) on review for upgrade
Bank of Ningbo Co., Ltd. (Lead analyst: David
Yin)
• Long-term (local/foreign currency) bank deposit rating downgraded
to Baa3 from Baa2, outlook changed to stable from negative
• Short-term (local/foreign currency) bank deposit rating
downgraded to P-3 from P-2
• BCA downgraded to ba2 from ba1
• Adjusted BCA downgraded to ba2 from ba1
• CRA downgraded to Baa3(cr)/P-3(cr) from Baa2(cr)/P-2(cr)
• Outlook changed to stable from negative
Bank of Shanghai Co., Ltd. (Lead analyst: David
Yin)
• Long-term (local/foreign currency) issuer rating downgraded
to Baa3 from Baa2, outlook changed to stable from negative
• Short-term (local/foreign currency) issuer rating downgraded
to P-3 from P-2
• Long-term (local/foreign currency) bank deposit rating downgraded
to Baa3 from Baa2, outlook changed to stable from negative
• Short-term (local/foreign currency) bank deposit rating
downgraded to P-3 from P-2
• BCA downgraded to ba2 from ba1
• Adjusted BCA downgraded to ba2 from ba1
• CRA downgraded to Baa3(cr)/P-3(cr) from Baa2(cr)/P-2(cr)
• Outlook changed to stable from negative
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The Local Market analyst for the rating of China Guangfa Bank Co.,
Ltd., China Merchants Bank Co., Ltd.,
China Merchants Bank Co., Ltd., Singapore Branch,
China Merchants Bank Co., Ltd., New York Branch,
China Merchants Bank Co., Ltd., Luxembourg Branch,
China Merchants Bank Co., Ltd., Hong Kong Branch,
Bank of Shanghai Co., Ltd., Bank of Ningbo Co.,
Ltd., Shanghai Pudong Development Bank Co.,
Ltd., Shanghai Pudong Development Bank Co.,
Ltd., Hong Kong Branch, and Ping An Bank Co.,
Ltd is Ying Yulia Wan, +86-21-6101-0380.
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 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.
David Yin
Asst Vice President - Analyst
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
Minyan Liu
Associate Managing Director
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
