affirms China’s other large state banks
Feb 06 Fitch Ratings has upgraded Bank of Communications (BCOM) Long Term Issuer Default Rating (IDR) to from and its Short Term IDR to from BCOM Support Rating Floor was also revised to from At the same time, Agricultural Bank of China (ABC) moncler uk outlet Viability Rating (VR) was upgraded to from All other ratings of the five large state banks have been affirmed with Stable Outlooks. A full list moncler sale of rating actions is below.
These actions were taken in conjunction with actions on 11 moncler sale online other Chinese banks (see Affirms IDRs of 11 Mid Tier China Banks; Downgrades VRs of CITIC, Ping An, Industrial and Banks: Mid Tier Most Under Pressure both dated 6 February 2013).
All of the IDRs are based on state support, and are at the banks Support Rating Floors, reflecting varying expectations about prospects of extraordinary support from the central government in the event of discount moncler jackets stress.
The Support Rating Floor and Long Term IDR of BCOM were upgraded, reflecting a reassessment of the probability of cheap moncler sale support for the bank relative to other state owned banks. Despite BCOM smaller size (4% of system deposits versus an average 12% for each of the other state banks), it is unlikely that state support would be materially less for BCOM than other best moncler jackets state banks given the central government substantial 40% direct ownership stake. BCOM has also been a recipient of state support in the past.
China five large state owned commercial banks possess Support Ratings of the highest level on Fitch scale of to and Support Rating Floors of one moncler sale outlet notch below China sovereign rating. The five state banks account for a large 47% share of sector assets. The central government is the largest shareholder of each of the banks, and has a long track record of providing solvency and asset quality support to the entities. Consequently, the Support Rating Floors of these institutions continue to be closely linked to China sovereign rating.
Any changes to IDRs will be tied to shifts in the perceived willingness or ability of the central government to support the banks. The government has substantial resources to address deterioration in the banking sector. Required deposit reserves of 18% of non fiscal deposits in 2012 could be released in the event of banking system liquidity strains. Meanwhile, the government has demonstrated its willingness in the past to draw on part of its foreign exchange reserves (USD3.3trn in 2012) to recapitalise banks. At the same time, the large and increasing size of the banking system (Fitch estimates total credit/GDP at 193% at end 2012, compared with 120% pre crisis) means that the cost of support could be substantial relative to even the sovereign considerable resources. also taking into account off balance sheet activity), risks over the level and pace of credit growth in the financial system, issues with data integrity, and nascent regulatory and legal systems. Corporate governance issues stemming from the continued predominance of state over moncler outlet online institutional interests are also a constraint on VRs. moncler online store The range of Chinese banks VRs has not changed since their introduction in 2011.
The cheap moncler jackets upgrade of ABC VR reflects a reassessment moncler outlet sale of its rating based on relative intrinsic strengths, including greater stability over time compared with cheap moncler jackets mens domestic peers. ABC has amongst the strongest deposit funding of any bank in China; robust liquidity; and below average credit exposure and off balance sheet activity, including limited wealth management product (WMP) issuance.
The range VRs of state banks, Bank of China (BOC), China Construction Bank (CCB), Industrial Commercial Bank of China (ICBC) and BCOM, like ABC, are the highest in the sector, reflecting their strong nationwide franchises, funding and liquidity strength, smaller off balance sheet activities, and higher loss absorption capacity relative to other domestic peers. These features also mean state banks would likely benefit from a flight to safety, providing further moncler outlet prices support to their VRs in a stress scenario.
Downgrades of VRs could be triggered if excessive growth renders capital more vulnerable to deterioration, if asset quality weakening begins to undermine solvency, or if funding and liquidity strains become more binding. Major disruptions in WMP issuance or interbank market distress could also lead to VR downgrades for those entities most exposed to such activities.
VR upgrades for China banks are unlikely over the near to medium term. However, slower credit growth, reduced off balance sheet activities (or greater transparency around these activities), improved loss absorption capacity, and stronger deposit funding and liquidity would help to stabilise the VRs at their current levels.
Over the moncler outlet medium term, the sector faces asset quality risk given the magnitude of the post global financial crisis credit boom. By end 2013, the total stock of credit in the financial sector will have tripled since 2008, while GDP will have risen only 85% 90%.
Nonperforming, special mention, and overdue loans have been rising since Q411, but Fitch believes reported metrics understate the magnitude of impaired loans. The reliability of data is worsening as larger amounts of credit are informally securitised into WMPs, passed on to nonbanks, and transformed into private placement debt securities and interbank uk moncler sale claims. Hence, even though moncler womens jackets rising delinquencies are expected to persist in 2013, reported levels are likely to remain low, giving the appearance of benign asset quality pressure.
Given these issues with data integrity, Fitch analysis of asset quality places a much heavier emphasis on loss absorption online website https://www.cheapmoncler.com cheap moncler capacity (which includes factors such as capitalisation, loan loss reserve coverage, and profitability) than loan classification data. Most of the banks under Fitch coverage can withstand a rise in impaired credit to the mid single digits, after which varying degrees of extraordinary state support would be required. However, recognition of asset impairment will be a protracted process. In the meantime, delinquencies will continue to manifest in eroding liquidity and cash uk moncler outlet buffers, as inflows from distressed borrowers remain weak and more resources are directed at forbearance and support.
Chinese banks large off balance sheet activities and rapidly expanding transactions with nonbanks are also a risk. Non loan credit now comprises one third of total credit outstanding in the financial sector, up from 15% in 2006. A key risk over the short term is Chinese banks issuance of WMPs, substitutes for time deposits, which have been growing rapidly as competition for deposit funding intensifies. The balance of outstanding WMPs stood at CNY12trn in Q312, moncler outlet store up from CNY8.4trn at end 2011.
WMPs are changing the nature of Chinese banks stable, moncler outlet woodbury cheap deposit base into one that is more mobile, expensive and short term. The moncler usa products short tenors, frequent mismatching of assets and liabilities, and poor disclosure about underlying cheap moncler jackets womens assets present a significant contingent risk to the issuing banks. Because most WMPs are managed on a pooled basis, it is difficult for banks to demonstrate underperformance on the cheap moncler coats mens underlying assets, impeding their ability to impose losses on investors. State banks derive much less of their funding through this channel than mid sized banks.