TEXT-Fitch affirms IDRs of 11 mid-tier Chinese banks; downgrades VRs of CITIC, Ping An, Industrial

Wed Feb 6, 2013 5:25am EST

Related Topics

Chinese banks' large off-balance-sheet activities and rapidly expanding transactions with nonbanks are also a risk. Non-loan credit now comprises one-third of total credit outstanding in the financial sector, up from 15% in 2006. The three banks whose VRs were downgraded today all have elevated exposure to "shadow" finance versus peers. CNCB and PAB are large distributors of investment products sold by related-party nonbanks (including CITIC Trust, CITIC Securities, Ping An Trust, and Ping An Securities). IB owns a 73% stake in local trust company, China Industrial International Trust Co., and is also a large extender of credit in the interbank market, resulting in high exposure to small banks and nonbanks with weaker intrinsic strength.

A key risk over the short-term is Chinese banks' issuance of WMPs, substitutes for time deposits, which have been growing rapidly as competition for deposit funding intensifies. The balance of outstanding WMPs stood at CNY12trn in Q312, up from CNY8.4trn at end-2011. WMPs are changing the nature of Chinese banks' stable, cheap deposit base into one that is more mobile, expensive and short-term. The products' short tenors, frequent mismatching of assets and liabilities, and poor disclosure about underlying assets present a significant contingent risk to the issuing banks. Because most WMPs are managed on a pooled basis, it is difficult for banks to demonstrate underperformance on the underlying assets, impeding their ability to impose losses on investors. Mid-sized banks derive a much larger share of their funding through this channel than state banks.

The current ratings of China's 11 commercial non-state banks are listed below. The ratings of Bank of Shanghai (BOS) have been affirmed and withdrawn as the rating of the issuer is no longer considered by Fitch to be relevant to the agency's coverage.

China CITIC Bank (CNCB)

Long-Term IDR affirmed at 'BBB'; Stable Outlook

Support Rating affirmed at '2'

Support Rating Floor affirmed at 'BBB'

Viability Rating downgraded to 'b+' from 'bb-'

Industrial Bank (IB)

Long-Term IDR affirmed at 'BB+'; Stable Outlook

Support Rating affirmed at '3'

Support Rating Floor affirmed at 'BB+'

Viability Rating downgraded to 'b' from 'b+'

Ping An Bank (PAB)

Long-Term IDR affirmed at 'BB+'; Stable Outlook

Support Rating affirmed at '3'

Support Rating Floor affirmed at 'BB+'

Viability Rating downgraded to 'b' from 'b+'

China Merchants Bank (CMB)

Long-Term IDR affirmed at 'BBB'; Stable Outlook

Support Rating affirmed at '2'

Support Rating Floor affirmed at 'BBB'

Viability Rating affirmed at 'bb-'

China Everbright Bank (CEB)

Long-Term IDR affirmed at 'BBB'; Stable Outlook

Support Rating affirmed at '2'

Support Rating Floor affirmed at 'BBB'

Viability Rating affirmed at 'b+'

Shanghai Pudong Development Bank (SPDB)

Long-Term IDR affirmed at 'BB+'; Stable Outlook

Support Rating affirmed at '3'

Support Rating Floor affirmed at 'BB+'

Viability Rating affirmed at 'bb-'

China Minsheng Banking Corporation (MIN)

Long-Term IDR affirmed at 'BB+'; Stable Outlook

Support Rating affirmed at '3'

Support Rating Floor affirmed at 'BB+'

Viability Rating affirmed at 'bb-'

Bank of Beijing (BOB)

Long-Term IDR affirmed at 'BB+'; Stable Outlook

Support Rating affirmed at '3'

Support Rating Floor affirmed at 'BB+'

Viability Rating affirmed at 'bb-'

China Guangfa Bank (CGB)

Long-Term IDR affirmed at 'BB+'; Stable Outlook

Support Rating affirmed at '3'

Support Rating Floor affirmed at 'BB+'

Viability Rating affirmed at 'b+'

Hua Xia Bank (HXB)

Long-Term IDR affirmed at 'BB+'; Stable Outlook

Support Rating affirmed at '3'

Support Rating Floor affirmed at 'BB+'

Viability Rating affirmed at 'b'

Bank of Shanghai (BOS)

Long-Term IDR affirmed at 'BB+'; Stable Outlook; rating withdrawn

Short-Term IDR affirmed at 'B'; rating withdrawn

Support Rating affirmed at '3'; rating withdrawn

Support Rating Floor affirmed at 'BB+'; rating withdrawn

Viability Rating affirmed at 'bb-'; rating withdrawn

FILED UNDER: