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Fitch Affirms Ratings of China's 5 State-Owned Commercial Banks

05-24 17:04 Caijing
Fitch expects asset quality of the five banks to come under increasing pressure in 2012-2013 as growth of credit exposure averaged 95% for each of the five state banks from end-2008 to end-2011.

Fitch Ratings has affirmed Monday the Long-Term Foreign-Currency Issuer Default Ratings (IDRs) of China's large state-owned commercial banks with Stable Outlooks, as well as the banks' Support Rating Floors, reflecting continued strong expectations that state support would be forthcoming in the event of stress.

China's five state-owned commercial banks - Industrial & Commercial Bank of China (ICBC), China Construction Bank (CCB), Bank of China (BOC), Agricultural Bank of China (ABC), and Bank of Communications (BCOM) - account for a large 49% share of sector assets.

According to Fitch’s report, the ratings of these banks continue to be closely linked to China's sovereign rating at one to two notches below as the central government who is the largest shareholder of each of the banks has long been providing solvency and asset quality support to the institutions. 

The large state banks will benefit from a flight to safety given their implicit government guarantee and very strong deposit networks, but the banks' large balance sheets mean credit losses could be significant in terms of asset quality stress.

Fitch expects asset quality of the five banks to come under increasing pressure in 2012-2013 as growth of credit exposure averaged 95% for each of the five state banks from end-2008 to end-2011, compared with nominal GDP growth of just 47%.

Fitch warned in the report that a downgrade of the banks' Viability Ratings could occur if asset quality deterioration begins to threaten solvency or if funding and liquidity strains become more binding since their LT FC IDRs are driven solely by state support.

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