Fitch Ratings has affirmed the Long-Term Foreign-Currency Issuer Default Rating (IDR) of
The Outlook on the Long-Term IDR is Stable. At the same time, Fitch has affirmed BOB's Viability Rating (VR) at 'b+'.
Key Rating Drivers
IDRS, SUPPORT RATING AND SUPPORT RATING FLOOR
The bank's Long-Term IDR is driven by state support and is at the bank's Support Rating Floor (SRF) of 'BB+'. This reflects Fitch's expectation of a moderate probability of extraordinary support from the Chinese sovereign (A+/Stable) in the event of stress. This considers the bank's limited size and modest domestic significance. The bank does not have direct central government ownership or history of direct government support. We believe the
We expect BOB to be designated a domestic systemically important bank (D-SIB), probably later in 2021, but we think the government's ability to provide support to a large number of D-SIBs may be constrained by the size of
BOB's 'B' Short-Term IDR is mapped to its Long-Term IDR, in accordance with Fitch's Exposure Draft: Bank Rating Criteria published
VIABILITY RATING
BOB's VR benefits from its higher loan concentration (around half of its loans) in
Fitch has revised the operating environment (OE) score for BOB to 'bbb-'/positive from 'bb+'/stable, in line with the change for
Under Fitch's criteria, the benchmarks for the financial metrics of banks in a 'bbb' category OE are different from those in a 'bb' category OE, which would typically lead to upward potential for a bank's implied financial profile scores, and ultimately its VR. However, we have affirmed BOB's VR as it maintains a greater risk appetite than most Fitch-rated commercial banks such that it has the highest exposure to entrusted investments among Fitch-rated Chinese banks, offsetting the benefits of the improved OE. Furthermore, reported financial metrics in
RATING SENSITIVITIES
IDRS, SUPPORT RATING AND SUPPORT RATING FLOOR
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of
BOB's Short-Term IDR would be upgraded if its Long-Term IDR is upgraded.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The bank's Long-Term IDR, SR and SRF will come under pressure if Fitch perceives that the central government's propensity and/or ability to provide timely extraordinary support to the bank has diminished. For example, a sovereign rating downgrade could reflect diminished ability to support; lower propensity may also be reflected through an enhanced resolution framework, though we do not expect either scenario to occur in the near term.
A reduction in Bejing government ownership or influence in BOB may also lower the propensity of the state to support the bank if the reduction were to be significant, or if the bank's systemic importance were to be reduced.
BOB's Short-Term IDR will be downgraded if its Long-Term IDR is downgraded to or below 'CCC+', which we consider highly unlikely in the short-to-medium term.
VIABILITY RATING
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A sustained reduction in the bank's risk appetite such as material reduction of its shadow activities or improvement in transparency towards these activities, further reduction of its growth and sustained improvement of its capital buffers would be positive to its VR assessment, for example, if its CET1 ratio were to rise and stay above 10%.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
BOB's VR could be downgraded if there is a sustained increase in the bank's risk appetite, evident from continuous growth in entrusted investments or wealth-management products that significantly erodes asset quality and capital buffers. A sustained deterioration in the bank's financial metrics could lead to a VR downgrade, including a combination of the following reported core metrics:
The four-year average of impaired loans/gross loans increasing to and sustained at around 8% (2017-2020 reported four-year average of 1.4%), although Fitch's assessment of asset quality will also consider other indicators, such as 'special-mention' loans, loan-loss provisioning, and whether and to what extent we believe reported metrics understate any deterioration in asset quality and;
CET1 ratio falling below 7.5% without a credible path to return to existing levels.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
BOB's IDRs are directly linked to
ESG Considerations
BOB has an ESG Relevance Score of '4' for Financial Transparency. There are still structural issues around financial transparency and disclosure, which are not captured in headline performance metrics in
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONSENTITY/DEBT RATING PRIOR
Bank of Beijing Co., Ltd. LTIDR BB + Affirmed BB+
ST IDR B New Rating
Viability b+ Affirmed b+
Support 3 Affirmed 3
Support Floor BB+ Affirmed BB+
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure:
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