CI Ratings affirms Bank of China ratings
Capital Intelligence Ratings (CI Ratings) affirmed the Long-Term Foreign Currency Rating (LT FCR) and Short-Term Foreign Currency Rating (ST FCR) of Bank of China (BOC) at ‘A’ and ‘A1’, respectively.
Additionally, CI has affirmed BOC’s Bank Standalone Rating (BSR) at ‘bbb-‘ and Core Financial Strength (CFS) rating at ‘bbb-‘. The Outlook for the LT FCR and BSR remains Stable.
BOC’s LT FCR is set four notches above the BSR due to its Very High Extraordinary Support Level (ESL), reflecting its majority state-ownership and globally systemically important bank (G-SIB) status.
The Chinese government’s strong track record of supporting troubled banks and its ample resources provide further support to BOC’s creditworthiness.
The Bank’s BSR is derived from a CFS rating of ‘bbb-‘ and an Operating Environment Risk Anchor (OPERA) of ‘bbb-‘.
While China’s economy exhibits strengths, it also faces challenges such as macro-financial risks, property market weaknesses, and rising external risks. These factors have contributed to a modest risk assessment for the OPERA.
Although Chinese banking institutions currently maintain satisfactory financial ratios, CI expresses concerns about the potential impact of the weak property market and financial stress in the local government financing vehicle (LGFV) sector on the overall banking sector’s vulnerability.
BOC’s BSR and CFS rating are driven by its comfortable liquidity indicators, good loan asset quality metrics, and solid capital ratios.
However, the bank faces challenges such as low profitability due to the low interest rate environment, headwinds from the real estate sector downturn, and rising financial stress in the LGFV segment.
These factors may constrain any improvement in profitability metrics in the short term.
While BOC has shown consistently good loan and investments quality, its high exposure to the weak real estate sector and lack of disclosure on LGFV exposure remain potential constraints for the ratings.
Attribution: Capital Intelligence Ratings report
Subediting: Y.Yasser
