November 29, 2017 / 1:05 AM / in a year

Fitch Affirms 3 Chinese Policy Banks at 'A+'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG/TAIPEI, November 28 (Fitch) Fitch Ratings has today 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+'. The Outlook is Stable. A full list of rating actions is at the end of this rating action commentary. IDRS, SUPPORT RATINGS, SUPPORT RATING FLOORS The banks' ratings, which are equivalent to that of China's sovereign ratings (A+/Stable/F1+), are based on an extremely high probability of the central government supporting the banks in a timely manner in the event of stress. Fitch believes the latest regulations released by the China Banking Regulatory Commission in November 2017 over the supervision of the three policy banks are aimed at improving their operational efficiency and profitability such that their capital can become self-sustaining in the long run. The new regulations will come into effect at the beginning of 2018. There has been greater emphasis over capital adequacy and explicit statements by the regulator over potential state capital injections into the policy banks, if required, further reinforce Fitch's expectations for strong support propensity from the state towards these entities. Such expectations are also backed by the banks' 100% state ownership and a long history of support from the central government including capital injections. The entities' quasi-sovereign status is also reflected in a zero-risk weighting applied to all bonds issued by the three policy banks. No Viability Ratings are assigned as the policy banks effectively act as agents of the state. There are no notable changes in their respective policy roles under the new regulations. Fitch expects the three banks to maintain their increasingly important policy roles in supporting and promoting the strategic development of China's economy by providing financing in key areas: CDB for social housing projects, domestic infrastructure projects and pillar industries; ADBC for procurement of agricultural goods and rural development projects; and ExIm for development of international trade. CDB and ExIm also provide financing for strategic overseas investments and resource purchases on behalf of the state, such as China's One Belt One Road development initiative. The policy banks' asset growth, which is controlled by the state, remains rapid and is above industry average as they support state policies to sustain China's economic growth and drive economic transformation. Fitch expects all three policy banks will continue to play a significant role in supporting state policy objectives, including policy-directed lending to parts of the economy or borrowers that may otherwise be perceived as unfavourable on a risk-adjusted basis for commercial lenders. The new regulations specifically state that the policy banks should give priority to policy-related businesses over commercial activities. The new regulations also put greater emphasis over governance and risk management at the policy banks, and that in principle, the policy banks should be subject to the same prudential requirements as commercial banks, though no specific regulatory targets were given. Fitch believes tighter supervision at these entities is consistent with the authorities' broader commitment to containing financial sector risks in China. RATING SENSITIVITIES IDRS, SUPPORT RATINGS, SUPPORT RATING FLOORS The IDRs of the three policy banks will likely move in tandem with the sovereign ratings. However, negative rating action would also be taken should there be any change in the perceived ability and/or willingness of the state to support the banks. Examples of this would include a reduction in government ownership, a material change in the banks' policy role (such as commercialisation of their operations) and/or changes in the support mechanism that affect the banks' relationship with the state. The rating actions are as follows: China Development Bank Corporation: Long-Term Foreign-Currency IDR affirmed at 'A+'; Outlook Stable Short-Term Foreign-Currency IDR affirmed at 'F1+' Support Rating affirmed at '1' Support Rating Floor affirmed at 'A+' Agricultural Development Bank of China: Long-Term Foreign-Currency IDR affirmed at 'A+'; Outlook Stable 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+'; Outlook Stable Short-Term Foreign-Currency IDR affirmed at 'F1+' Support Rating affirmed at '1' Support Rating Floor affirmed at 'A+' Contact: Primary Analyst Grace Wu (Export-Import Bank of China, Agricultural Development Bank of China) Senior Director +852 2263 9919 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Katie Chen (China Development Bank Corporation) Director +886 2 8175 7614 Fitch Australia Pty Ltd, Taiwan Branch Suite 1306, 13/F 205 Tun Hwa North Road Taipei 105, Taiwan Secondary Analyst Grace Wu (China Development Bank Corporation) Senior Director +852 2263 9919 Jack Yuan (Export-Import Bank of China, Agricultural Development Bank of China) Associate Director +86 21 5097 3038 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. 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