RPT-Fitch Affirms ICBC Asia and ICBC Macau at 'A'; Outlook Stable

Fri May 30, 2014 4:44am EDT

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May 30 (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 Macao-based Industrial and Commercial Bank of China (Macau) Limited's (ICBC Macau) Long-Term Issuer Default Ratings (IDR) at 'A' with Stable Outlook. A full list of rating actions is at the end of this rating action commentary.

The affirmation of ICBC Asia's and ICBC Macau's ratings reflect Fitch's view that both entities remain core subsidiaries of their Chinese parent Industrial & Commercial Bank of China (ICBC; A/Stable), and as such, there is an extremely high probability of support from the parent if required. The agency does not assign Viability Ratings to the banks as their intrinsic credit strength is subject to their operation and financial integration with ICBC.

ICBC Asia is the largest overseas subsidiary of ICBC by assets (2.4% of total assets at end 2013) and it contributed 1.3% of the parent's consolidated operating profit. ICBC Macau is Macao's second-largest bank by assets and the third-largest overseas subsidiary of ICBC by assets (0.6%) and profit (0.3%).

KEY RATING DRIVERS - IDRs, COMMERCIAL PAPER PROGRAMME AND SUPPORT RATINGs

The IDRs and Support Ratings of both banks reflect their roles in ICBC's cross-regional franchise and offshore renminbi business, and strong integration with ICBC in management, funding and business generation. The IDRs are aligned with ICBC's, reflecting Fitch's expectation that support from the Chinese government for ICBC if required would extend to ICBC Asia and ICBC Macau given their core importance to its parent. The Stable Outlooks are also in line with the Outlook on ICBC's IDR.

Fitch continues to believe that ICBC remains committed to support ICBC Asia and ICBC Macau with liquidity and capital to accommodate their further growth. ICBC Asia is likely to receive additional capital from the parent, in addition to HKD11.7bn (USD1.5bn) of common equity received in 2011-2012. ICBC also subscribed to ICBC Macau's existing subordinated debt. Fitch expects additional issuance of subordinated debt by ICBC Macau.

Capturing financing needs for mainland customers' overseas expansion remains one of the banks' core businesses. Fitch expects both banks' China-related exposures to continue to increase in line with this strategy. The mainland customers are often referred from their Chinese parent, representing a large portion of ICBC Asia's 20 largest borrowers. ICBC Asia's gross mainland China exposures remained significant at 64% of total assets at end-2013 (end-2012: 61%), while ICBC Macau's rose to 38% of assets at end-2013 (end-2012: 34%) as per Fitch's definition. A material portion of ICBC Asia's loan portfolio and 20% of ICBC Macau's benefit from guarantees by ICBC.

Both banks' risk appetite and profile are aligned with their parent's through secondment of management executives, through centralised business, funding and risk control and by making use of a common core banking system which, among others, facilitates the group's liquidity management.

RATING SENSITIVITIES - IDRs, COMMERCIAL PAPER PROGRAMME AND SUPPORT RATINGs

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

RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT

Subordinated notes issued by ICBC Asia are notched down from its IDR (i.e. the anchor rating) as Fitch expects parental support. Subordinated notes without non-viability clauses are rated one notch below ICBC Asia's IDR to reflect below average recovery prospect of the instruments given their subordination to senior unsecured instruments. Subordinated notes with non-viability clauses are rated two notches below the IDR as the instruments will be written-down to nil and the amount (once written-off) will not be restored.

Fitch believes the risk of non-performance of the notes is adequately reflected in the anchor rating and no incremental notching is applied. Ratings on ICBC Asia's subordinated notes are primarily sensitive to any change in the bank's IDR.

The rating actions are as follows:

ICBC Asia

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

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

Support Rating affirmed at '1'

Subordinated notes without non-viability clauses affirmed at 'A-'

Subordinated notes with non-viability clauses affirmed at 'BBB+'

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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