May 14, 2020 / 11:14 AM / 21 days ago

UPDATE 2-Fitch wins approval for China domestic bond ratings

(Adds comments by president of Fitch Ratings, industry background)

By Andrew Galbraith and Marc Jones

SHANGHAI, May 14 (Reuters) - Fitch on Thursday became the second global ratings agency to receive approval to rate China’s domestic bond market, in what the country’s central bank said was part of its implementation of the Phase 1 trade deal with the United States.

In a statement, the People’s Bank of China (PBOC) said it had approved Fitch Bohua Credit Ratings Ltd, a wholly owned subsidiary of Fitch Ratings, to operate in China’s $13 trillion onshore bond market.

The National Association of Financial Market Institutional Investors (NAFMII), the interbank market regulator, had also approved Fitch Bohua’s registration to rate bonds in the interbank market, the PBOC said.

The moves were “concrete implementations” of last year’s U.S. trade deal, the PBOC said. It would continue to promote the “high-level” opening of the credit rating sector and also wanted rating agencies to play a bigger role in guarding against financial risks and improve the financing environment for the country’s small and medium-sized companies.

China first pledged to open its ratings market to foreign agencies in May 2017 following trade talks between Beijing and the then-new Trump administration in Washington.

But up until Thursday only S&P Global had been given the green light, following its approval in January last year.

Ian Linnell, president of Fitch Ratings, told Reuters: “We are very excited. We put the application in back in November 2018 and we have been waiting a long time.”

“The Chinese domestic bond market is a huge market - probably the second-biggest bond market in the world now.”

He said the firm’s role would be to bring a different “credit culture” with “more credit discipline and greater transparency.” It ratings were likely to be lower and more expensive, though, than those of China’s homegrown agencies, creating potentially “a tough sell.”

It is part of a long-term strategy. Thursday’s PBOC move gives Fitch Bohua the right to rate financial firms and structure finance, but it hopes to gain approval next to operate in China’s massive corporate bond market.

“Our intent is to build out Bohua pretty rapidly to cover corporates as well to be a full-service rating agency,” Linnell said. “Within a year we would look to be covering corporate ratings.” (Reporting by Andrew Galbraith in Shanghai and Marc Jones in London Additional reporting by the Beijing Newsroom; Editing by Mark Heinrich and Matthew Lewis)

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