Fitch Assigns CCB Asia 'A' Rating; Outlook Stable

Tue Aug 5, 2014 4:25am EDT

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(The following statement was released by the rating agency) HONG KONG, August 05 (Fitch) Fitch Ratings has assigned Hong Kong-based China Construction Bank (Asia) Corporation Limited (CCB Asia) a Long-Term Issuer Default Rating (IDR) of 'A' and a Short-Term IDR of 'F1'. The Outlook is Stable. In addition, a Support Rating of '1' is also assigned. CCB Asia is a wholly owned subsidiary of China Construction Bank Corporation (CCB; A/Stable). Fitch classifies CCB Asia as a core subsidiary of CCB, given its importance to and strong integration with the parent, and as such, there is an extremely high probability of support from the parent, if needed as reflected in the Support Rating. The agency has not assigned a Viability Rating to CCB Asia as its intrinsic strength is subject to its operation and financial integration with the parent. KEY RATING DRIVERS - IDRs AND SUPPORT RATING CCB Asia's IDRs and Support Rating reflect Fitch's expectation that support from CCB and ultimately the Chinese government which, if required, would pass through to CCB Asia given its core importance to the parent and the importance of Hong Kong to China. The Stable Outlook reflects the agency's view that CCB Asia's importance to the parent will not materially change over the rating horizon. The Stable Outlook of CCB Asia is thus in line with the Outlook on CCB's IDR. CCB Asia is the largest overseas subsidiary of CCB, representing 44% of CCB's total overseas assets at end-2013. CCB Asia plays an important role in CCB's overseas expansion strategy and provides cross-border financing to CCB's clients on the mainland. CCB Asia is strongly integrated with the parent in business strategy, management and business generation. The strong integration manifests itself in CCB's majority representation on CCB Asia's board (seven out of 12 seats). CCB Asia is also integrating its core banking system with the parent's. The majority of the corporate banking businesses of CCB Hong Kong Branch was consolidated into CCB Asia in 2013. After the integration, CCB Hong Kong Branch's loans accounted for approximately one-third of the consolidated financial position at end-2013. The integration helps CCB Asia to provide complementary products and services to clients in mainland China with cross-border financial service needs, especially large state-owned corporates. CCB Asia is developing its own funding franchise, yet there is a strong reliance on parent funding and with funding sources linked to the parent. CCB provides strong liquidity to support a large portion of CCB Asia's assets through interbank placements. CCB Hong Kong Branch often issues certificates of deposits on behalf of CCB Asia because the Hong Kong Branch has lower funding costs. Further, in times of stress, CCB Asia can access a standby facility provided by the parent that was recently increased to HKD60bn (USD7.7bn) from HKD6bn. CCB Asia received CNY17.6bn (USD2.9bn) of common equity in 2013 and USD800m in 2009 from the parent to accommodate its growth aspirations. CCB Asia has been granted a certain degree of autonomy in risk management decisions, such as developing independent credit assessment systems, conducting due diligence on customers to access the primary sources of repayments and performing post-credit management as required by the Hong Kong Monetary Authority (HKMA). Still, CCB Asia's credit portfolio is closely linked to its relationship with the parent - CCB often guides CCB Asia to adhere to its credit policies, such as extending credit to certain industries and customers, monitoring a list of customers referred from CCB and controlling risk limits. Credit would often be granted if there is collateral or credit enhancement from the parent. Fitch expects CCB Asia's China-related exposures to continue to increase in line with the parent's strategy to capture the financing needs for mainland customers' overseas expansion. CCB Asia's China-related exposures (as defined by Fitch) rose to 76% of its total assets at end-2013. A substantial portion of CCB Asia's loans are referred from CCB and of which, a material portion has benefited from standby letters of credit or guarantees extended by its Chinese parent. CCB Asia was established in 1912 and is the seventh-largest bank in Hong Kong by asset share (2013: 2.4%). CCB Asia's net profit after tax was HK$3.7bn and total assets were HK$414bn in 2013. RATING SENSITIVITIES - IDRs AND SUPPORT RATING CCB Asia's rating is sensitive to any changes to CCB's propensity or ability to extend extraordinary support in a timely manner. Any change in CCB's rating, reflecting any shift in the Chinese government's propensity or ability to support CCB in a timely manner, is likely to lead to similar rating action on CCB Asia. Contact: Primary Analyst Ivan Lin Associate Director +852 2263 9984 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Katie Chen Associate Director +8610 8517 2135 Tertiary Analyst Jonathan Cornish Managing Director +852 2263 9901 Committee Chairperson Mark Young Managing Director +65 6796 7229 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, and "Rating FI Subsidiaries and Holding Companies", dated 10 August 2012 are available at Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Rating FI Subsidiaries and Holding Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.