China Bank Maintains Moody's Investment Grade

On the basis of China Bank's strong capitalization and profitability, Moody's Investors Service reaffirmed the bank's credit grade. With a stable outlook, deposit and issuer credit ratings remained at Baa2, one notch above minimum investment grade.

Photo Insert: China Bank's credit strengths were identified by the international credit watchdog as being sound liquidity, steady capitalization, and profitability, which promote company expansion.

China Bank's credit strengths were identified by the international credit watchdog as being sound liquidity, steady capitalization and profitability, which promote company expansion.

The Common Equity Tier 1 (CET1) capital ratio of China Bank has increased gradually over the past three years, rising from 13.8 percent in 2020 to 14.9 percent in 2021 and 15.5 percent as of the end of March 2022.

“The improvement in the bank's capital since 2019 has been higher than the average of its peers, reflecting a combination of low loan growth from the pre-pandemic level in 2019 and increased profitability,” Moody’s noted in its report.

Additionally, the Bank reported greater annualized core operating profitability of 1.9 percent as of the end of March 2022 (pre-provision income less trading profits as a proportion of assets). It had the greatest annualized return on average assets (ROA) among its rated domestic counterparts at 1.7 percent.

“The improvement in profitability for the period was driven by higher NIM (net interest margin), which increased to 4.3% for the three months that ended March 2022 from 4.2% a year earlier. The improvement in NIM was largely because of the low interest and easy liquidity environment, which led to a significant reduction in funding costs,” the Moody’s report stated.

As for the Bank's credit issues, Moody's pointed to asset quality risks brought on by the concentrated loan book and a modest funding profile with a disproportionately large amount of corporate deposits.

Business loans, which are less vulnerable to economic upheavals, accounted for 80.1 percent of China Bank's gross loans. As of the end of March 2022, its non-performing loans (NPL) ratio had decreased from 3.8 percent to 2.4 percent year on year.

While China Bank's market funds/total tangible assets ratio is lower than that of most of its peers, the Bank's liquid assets/total tangible assets ratio has remained relatively consistent at 30.8 percent for that same period.

Moody's said it may enhance China Bank's Baseline Credit Assessment (BCA) “if the bank’s asset quality reverts to pre-pandemic levels and NIM improves in a rising interest rate environment.” In summary, if the bank's BCA and the Philippines' sovereign rating are improved, China Bank's deposit rating may be raised as well.

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