Moody’s affirms deposit ratings for Big Four banks

Moody's Investors Service on Nov 7 affirmed deposit ratings for China's Big Four banks and upgraded the credit assessment of one of them, as the sector reels from narrowed interest margins and rising bad loans amid economic uncertainty.

In a press release, the international rating agency maintained the long-term and short-term deposit ratings for the four lenders, and upgraded the baseline credit assessment for the Agricultural Bank of China from Ba3 to Ba2.

The other three banks are the Industrial and Commercial Bank of China, China Construction Bank, and Bank of China. ABC's financial-strength rating was also improved, from D- to D.

"The affirmation of the ratings of ICBC, CCB and BOC with a stable outlook follows a review of the latest economic and regulatory developments in China," said Hu Bin, a vice president and senior analyst of Moody's.

"It reflects our assessment that these banks' performances, especially in terms of asset quality and profitability, will prove resilient in the current challenging operating environment."

He acknowledged the three have recorded increases in delinquent and special-mention loans since late 2011 as a result of China's economic slowdown, amid margin pressure as parts of their loan books have yet to be repriced at lower rates after the authorities' moves to further liberalize interest rates.

"Nonetheless, we do not expect a sharp fall in these banks' asset quality and profitability over the next 12-18 months," Hu said.

Hu said that factors such as the still above-target growth of China, the measures the banks have taken to restructure and monitor loans to local government financial vehicles, and gradual regulatory changes from the authorities will help contain the risks.

The three banks — ICBC, CCB and BOC — have large loan portfolios and strong franchises, which allow them to both diversify risk across sectors and location, and to approach credit underwriting on a more selective basis when compared with their smaller peers, said Moody's.

The decision by Chinese policymakers not to embark on another bout of government-promoted lending — similar to what was seen in 2009 — is also likely to help the banks avoid the excessive risk-taking often related to rapid credit growth, it said.

The upgrade of ABC's credit assessment reflects the improvement in the bank's performance since its IPO in 2010 in Shanghai and Hong Kong, and a shift in development strategy by the Chinese government towards western and central China will favor ABC more than the other banks, Hu said.

Moody's said it will likely upgrade these banks' baseline credit assessments next year "if there are growing signs of economic stabilization and if these banks can keep their financial performances close to current levels".

However, upgrades to their current A1 deposit and debt ratings are remote, it added.