September 5, 2017 / 7:56 AM / 2 years ago

Fitch Affirms 6 Chinese Mid-Tier Banks; Outlook Stable

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, September 05 (Fitch) Fitch Ratings has affirmed the Long-Term Foreign-Currency Issuer Default Ratings (IDRs) and Viability Ratings of six Chinese mid-tier commercial banks. The Outlooks on the banks' IDRs are Stable. A full list of rating actions is at the end of this commentary. The six banks are: - Industrial Bank Co., Ltd - China MinSheng Banking Corporation - Ping An Bank Co., Ltd - Hua Xia Bank Co., Limited - China Guangfa Bank Co., Ltd. - Bank of Beijing KEY RATING DRIVERS IDRS, SUPPORT RATINGS AND SUPPORT RATING FLOORS All of the banks' IDRs are based on state support and are at the banks' Support Rating Floors of 'BB+'. This reflects Fitch's continued expectation that there is a moderate probability of extraordinary support from the Chinese state (A+/Stable) in the event of stress. This is based on several factors, including their relative size, domestic significance and ownership structure. There is typically no direct central government ownership and a limited history of government support at these banks, despite their status as national joint-stock commercial banks (except for Bank of Beijing, which is a city commercial bank). State-owned strategic investors have been acquiring stakes at some of these mid-tier banks in recent years, and these strategic investors are often linked to Chinese insurers. This shift in ownership may result in greater synergies and cross-selling opportunities for some banks over the long run, but is not likely to change the likelihood of these banks receiving extraordinary support if needed. This is because Fitch expects support to come primarily from the state, which should remain steady, unless the private shareholders increase their stakes significantly, resulting in a meaningful reduction in state or policy influence over the banks. VIABILITY RATINGS The Viability Ratings of China's six mid-tier banks, which range from 'bb-' to 'b', reflect different degrees of intrinsic strength, which is affected by the banks' perceived risk appetite and ability to absorb risks; the level and pace of financial system credit growth and their impact on capital adequacy; transparency and corporate governance issues; an evolving regulatory framework; and the nascent legal system. System-wide provision buffers have fallen, with the average provision coverage ratio for joint-stock banks at 176% at end-June 2017, against the 150% regulatory minimum. Reported asset quality trends stabilised in 1H17, but Fitch believes this was supported by government stimulus in 2H16 and asset quality remains under pressure. There are also signs of a reduction in shadow-banking activity following tighter regulations introduced this year, with some of these mid-tier banks reporting declines in their entrusted investment and wealth management product (WMP) exposures during 1H17 (except for China Guangfa Bank, which only reports financial performance annually). Some even reported absolute declines in assets during 1H17. Fitch's analysis of Chinese banks' asset quality places greater emphasis on loss-absorption capacity, which includes factors such as capitalisation, loan-loss reserve coverage and profitability, rather than data on loan classifications. Fitch estimates the six mid-tier banks' loss-absorption buffers ranged from around 2% to 5% of credit based on end-2016 data (mid-tier average: around 4%), compared with an average of around 8% for state banks. This shows that most of the six mid-tier banks can withstand less deterioration in their buffers relative to the state banks before some form of remedial action is be likely to be required to restore capital to a sustainable level. Greater migration of assets back onto banks' balance sheets may further weigh on their capitalisation, as internal capital generation has lagged credit growth in most cases, due to the sharp decline in interest margins and lingering asset-quality pressures. Fitch took into account situations where capital raising is planned or has been completed by banks to offset rapid growth and maintain loss-absorption capacity at levels in line with similarly rated peers. RATING SENSITIVITIES IDRS, SUPPORT RATINGS AND SUPPORT RATING FLOORS The banks' Issuer Default Ratings (IDR) will come under pressure if Fitch perceives the state's ability to support the banking sector is undermined by the increasing size of the financial system. Chinese authorities have not yet provided any clear guidance on the classification of domestic systemically important banks. The guidance could lead to changes in the Support Ratings, Support Rating Floors and, in turn, the banks' IDRs. Fitch expects the state's propensity to support the banking sector to remain high over the near term and extremely high for systemically important banks. Significant changes to the sector's liability structure, which results in the banks' becoming more reliant on wholesale or offshore funding (that is, when the system loan/deposit ratio reaches over 100%), may affect the state's willingness to support the entire financial system - especially less systemically important banks - in the longer term, including resolving the rising stock of problem assets. A reduction in state ownership, either directly or indirectly through local governments or state-owned enterprises, may also negatively affect the propensity of the state to support these banks if the reduction is significant and it lowers state influence at these banks. VIABILITY RATINGS Fitch assesses that excessive growth, particularly in WMP issuances, exposures in entrusted investments and non-loan credit, may render capital more vulnerable to deterioration beyond what is implied by the current rating levels. The magnitude of growth in WMP issuance and entrusted investments over 2016 indicated the banks' risk appetite has increased. Some of the mid-tier banks' exposures in these areas declined in 1H17, but it is too early to tell whether such declines will be significant and sustainable. Reported asset quality has stabilised, although Fitch believes this was mostly due to government stimulus in 2H16. The agency believes asset quality will remain under pressure in the medium to long term. Growth that is not managed prudently and accompanied by a build-up of additional buffers can become a key source of credit and liquidity risk. Profitability was weighed down by declining net interest margins at these mid-tier banks as their funding costs have risen. In the past these banks tried to offset lower profitability through aggressive growth. Tighter regulatory commitment to containing financial-sector risks implies these mid-tier banks are unlikely to sustain their previous growth rates. Downgrades to the bank's Viability Ratings are possible if concentrations in exposures increase relative to peers; if deterioration in asset quality begins to undermine solvency; or if severe deposit migration or reliance on WMPs leads to greater funding and liquidity strains. The sector benefits from a degree of ordinary support from Chinese authorities, most notably in the form of liquidity injections in the market and aid for financially troubled borrowers, but major disruptions in the issuance of WMPs, quasi-substitutes for time deposits or interbank market distress could lead to Viability Rating downgrades. Viability Rating upgrades for China's mid-tier banks are possible if Fitch sees improvement in the banks' loss-absorption capacities or in their deposit funding and liquidity. Similarly, more sustainable credit (both loan and non-loan) growth, tighter market discipline or a more conservative risk appetite contributing to less off-balance-sheet activity (or being less of a concern, including greater transparency and clarify over their credit risks) may also benefit their Viability Ratings. The rating actions are as follows: Industrial Bank Co., Ltd -Long-Term Foreign-Currency IDR affirmed at 'BB+'; Stable Outlook -Support Rating affirmed at '3' -Support Rating Floor affirmed at 'BB+' -Viability Rating affirmed at 'b' China MinSheng Banking Corporation -Long-Term Foreign-Currency IDR affirmed at 'BB+'; Stable Outlook -Support Rating affirmed at '3' -Support Rating Floor affirmed at 'BB+' -Viability Rating affirmed at 'b+' Ping An Bank Co., Ltd -Long-Term Foreign-Currency 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 Co., Limited -Long-Term Foreign-Currency IDR affirmed at 'BB+'; Stable Outlook -Support Rating affirmed at '3' -Support Rating Floor affirmed at 'BB+' -Viability Rating affirmed at 'b' China Guangfa Bank Co., Ltd. -Long-Term Foreign-Currency IDR affirmed at 'BB+'; Stable Outlook -Support Rating affirmed at '3' -Support Rating Floor affirmed at 'BB+' -Viability Rating affirmed at 'b' Bank of Beijing -Long-Term Foreign-Currency IDR affirmed at 'BB+'; Stable Outlook -Support Rating affirmed at '3' -Support Rating Floor affirmed at 'BB+' -Viability Rating affirmed at 'bb-' Contact: Primary Analyst Grace Wu Senior Director +852 2263 9919 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Jack Yuan (Industrial Bank, China MinSheng Banking Corporation, Ping An Bank) Associate Director +86 21 5097 3038 Secondary Analyst Jaclyn Wang (Hua Xia Bank, China Guangfa Bank, Bank of Beijing) Associate Director +86 21 5097 3189 Committee Chairperson Tim Roche Senior Director +61 2 8256 0310 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below