April 4, 2014 / 10:07 AM / 4 years ago

RPT-Fitch affirms 3 Chinese policy banks at 'A+'; outlook stable

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April 4 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of China Development Bank Corporation (CDB), Agricultural Development Bank of China (ADBC), and Export-Import Bank of China (ExIm) at ‘A+’ with Stable Outlook. The banks’ Short-Term IDRs have also been affirmed at ‘F1’. No Viability Ratings are assigned since they act as agents of state policy. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS - IDRS, SUPPORT RATINGS, SUPPORT RATING FLOORS AND SENIOR DEBT

The ratings, which are equivalent to that of China’s sovereign, are based on an extremely high probability of the central government supporting the banks in the event of stress. This reflects the entities’ important policy functions to promote strategic development in China’s economy, their 100% state ownership and a long history of support from the central government for the banks.

All three policy banks play an important role in national economic development, including providing financing for domestic infrastructure projects and pillar industries (by CDB); the procurement of agriculture goods and rural development projects (by ADBC); and the growth of external trade (by ExIm). In addition to these core policy functions, CDB and ExIm provide financing for strategic overseas investments and resource purchases on behalf of the state.

Reflecting their policy roles, the banks’ asset growth, which is controlled by the state, remains rapid in order to sustain China’s economic growth and support economic transformation. On average, about 85% of asset expansion since 2007 was comprised of lending, which constitutes the largest share of total assets of all three policy banks. Recent growth at ADBC and ExIm has been increasingly focused on non-traditional policy lending, with nearly one-third of new credits going to rural infrastructure development and concessional loans to foreign governments on behalf of the state, respectively.

The entities’ quasi-sovereign status is reflected in a zero risk weighting applied to all bonds issued by the policy banks. China’s banking regulator recently announced the risk-weighting of bonds issued by CDB will remain zero at least up to end-2015.

Even though it was announced in 2007 that the objective was to eventually “commercialise” the policy banks, only CDB has been through the process; thus far it has converted into a joint-stock company, introduced a new board of directors and expanded the commercial areas of business. However, the transformation has been largely on hold since the global crisis and there is no tangible plan to restart it for policy banks in the foreseeable future.

RATING SENSITIVITIES - IDRS, SUPPORT RATINGS, SUPPORT RATING FLOORS AND SENIOR DEBT

The IDRs of the three policy banks will move in tandem with the sovereign ratings and changes in the perceived ability and/or willingness of the state to support the banks. If future commercialisation were to lead to a material change in banks’ policy role, support mechanism, or relationship with the state, downward revision of the Support Rating, Support Rating Floor, IDRs and senior debt are possible.

The rating actions are as follows:

China Development Bank Corporation:

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

Short-Term Foreign-Currency IDR affirmed at ‘F1’

Support Rating affirmed at ‘1’

Support Rating Floor affirmed at ‘A+’

USD1bn 5% Global Senior Unsecured Notes Due 2015 affirmed at ‘A+’

USD600m 4.75% Senior Unsecured Notes Due 2014 affirmed at ‘A+’

Agricultural Development Bank of China:

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

Short-Term Foreign-Currency IDR affirmed at ‘F1’

Support Rating affirmed at ‘1’

Support Rating Floor affirmed at ‘A+’

Export-Import Bank of China:

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

Short-Term Foreign-Currency IDR affirmed at ‘F1’

Support Rating affirmed at ‘1’

Support Rating Floor affirmed at ‘A+’

USD1bn 5.25% Senior Unsecured Notes Due 2014 affirmed at ‘A+’

USD1bn 4.875% Senior Unsecured Notes Due 2015 affirmed at ‘A+'

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