RPT-Fitch affirms ICBC Asia and ICBC Macau at 'A'; outlook stable

Fri Jun 7, 2013 3:48am EDT

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June 7 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Hong Kong-based Industrial and Commercial Bank of China (Asia) Ltd's (ICBC Asia) and Macau-based Industrial and Commercial Bank of China (Macau) Limited's (ICBC Macau) Long-Term Issuer Default Ratings (IDRs) at 'A'. The Outlooks on both banks' IDRs are Stable. A full list of rating actions is at the end of this commentary.

Fitch views ICBC Asia and ICBC Macau as core operating entities of their Chinese parent Industrial & Commercial Bank of China (ICBC, A/Stable), and as such considers the probability of extraordinary institutional support from the parent to be extremely high if required. Fitch does not assign Viability Ratings to the banks as their intrinsic credit strength is subject to their operational and financial integration with ICBC. The Stable Outlook is in line with the Outlook on ICBC's IDR.

KEY RATING DRIVERS - IDRS, COMMERCIAL PAPER AND SUPPORT RATINGS

The alignment of both banks' IDRs with ICBC's IDRs and the affirmation of their Support Ratings of '1' reflect their strategic importance to ICBC's cross-regional operations and offshore renminbi business, and strong coordination with ICBC in management, funding and business generation. This also reflects Fitch's expectation that support from the Chinese government for ICBC would extend to ICBC Asia and ICBC Macau in a timely manner.

Fitch believes that ICBC will remain committed to support both entities with liquidity and capital for future growth. ICBC injected HKD5.6bn of new common equity into ICBC Asia in 2012 following an injection of HKD6.1bn in 2011. Furthermore Fitch expects ICBC to fully subscribe to ICBC Macau's new issuance once existing subordinated instruments mature. Placements and certificates of deposit subscribed by ICBC remain one of the key funding sources of the two banks.

Fitch expects both banks' solid growth to continue and to be driven by client referrals from ICBC, in addition to their own organic growth. This will likely further increase their mainland China exposures. ICBC Asia's gross mainland China exposures were prominent at 56% of total assets at end-2012 and ICBC Macau's on- and off-balance sheet China-related exposures almost doubled to 34% of assets in 2012. Properties, bank deposits and parental guarantees remain key risk mitigations. About one-third of ICBC Asia's loan portfolio is covered by ICBC's guarantee; 18% of ICBC Macau.

The installation of core banking system developed by ICBC (in 2012 for ICBC Asia and 2013 for ICBC Macau) will strengthen centralised management and risk control and enable the two banks to leverage on the globally unified clearing platform to streamline liquidity management. ICBC Asia and ICBC Macau account for 2% and 0.5%, respectively, of ICBC's assets at end-2012.

RATING SENSITIVITIES - IDRS, COMMERCIAL PAPER AND SUPPORT RATINGS

ICBC Asia's and ICBC Macau's IDRs and Support Ratings are sensitive to any changes in ICBC's ratings or its propensity to extend extraordinary support.

RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT

Subordinated notes issued by ICBC Asia are rated one notch down from its IDR to reflect higher loss severity given their subordination to senior unsecured instruments. The use of the bank's IDR as an anchor rating reflects Fitch's view that support for the notes will likely be strong. The debt ratings are sensitive to the same factors as ICBC Asia's IDRs.

The rating actions are as follows:

ICBC Asia

- Long-Term Foreign-Currency IDR affirmed at 'A'; Outlook Stable

- Short-Term Foreign-Currency IDR and commercial paper affirmed at 'F1'

- Support Rating affirmed at '1'

- Subordinated notes affirmed at 'A-'

ICBC Macau

- Long-Term Foreign-Currency IDR affirmed at 'A'; Outlook Stable

- Short-Term Foreign-Currency IDR affirmed at 'F1'

- Support Rating affirmed at '1'

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