CHINA MINSHENG BANKING CORP., LTD.
Fitch Ratings has affirmed
The Outlook on the Long-Term IDR is Stable. At the same time, Fitch has affirmed CMBC'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 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 takes into consideration the bank's limited market share, especially in terms of retail deposits, lack of strong shareholder and parental support, as well as limited regional significance and local government linkage.
We expect CMBC to be designated as a domestic systemically important bank (D-SIB), likely later in 2021, but Fitch's view is that formal D-SIB designation alone may not materially affect support propensity for CMBC relative to peers with higher systemic importance or closer government linkages. This is driven by the consideration that the government's ability to provide support to a large number of D-SIBs may be constrained by the size of
CMBC was one of
The high risk of financial-system contagion may limit the shareholder's ability to provide extraordinary support to the bank in the event of stress, while the size of the bank relative to that of
CMBC's Short-Term IDR has been assigned at 'B' and is mapped to its Long-Term IDR, in line with Fitch's Exposure Draft: Bank Rating Criteria, published on
VIABILITY RATING
CMBC's VR reflects its limited risk buffers relative to its higher exposure to micro and small enterprise (MSE) loans and credit-card lending, which contributed 14% and 11%, respectively, of its total loans at end-1H21. The bank's exposure to entrusted investments (around 9% of assets at end-1H21) and off-balance-sheet wealth-management-products (WMPs, around 22% of deposits and 12% of assets) is large considering its limited capital buffers; its common equity Tier 1 (CET1) ratio was only 8.5% at end-1H21. CMBC issued
CMBC's reported NPL ratio increased to 1.8% by end-1H21 from 1.6% at-end 2019 due to the Covid-19 pandemic; its impaired loan ratio of 1.9% at end-1H21 was slightly higher than its reported NPL ratio (on local regulatory standards) of 1.8%. CMBC's loan-loss allowance ratio of 133% at end-1H21 was among the lowest for Fitch-rated Chinese commercial banks, providing limited room to absorb potential deterioration in asset quality. CMBC reported a net profit decline of 7% in 1H21, and we expect its profitability to remain pressured by a narrowing net interest margin and higher impairment charges, as reflected in our negative outlook on its earnings and profitability.
Fitch has revised the operating environment (OE) score for CMBC to 'bbb-'/positive from 'bb+'/stable, as we did for the state banks and large joint stock commercial banks. The revision captures the progress that
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 pressure on a bank's implied financial profile scores, and ultimately its VR. However, we have affirmed CMBC's VR as it maintains a higher risk appetite compared with most Fitch-rated commercial banks, especially in riskier types of loans such as MSE lending and credit-card receivables, 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
CMBC's Short-Term IDR will 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, Support Rating and Support Rating Floor 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.
CMBC's Short-Term IDR will not be downgraded unless its Long-Term IDR is downgraded to or below 'CCC+', which we view as 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 of transparency towards those 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 9.5%.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
CMBC's VR could be downgraded if the bank increases its risk appetite, especially in MSE loans and credit-card receivables, or aggressively increases its exposure to entrusted investments or WMPs, which erodes its capital buffer. 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 ratio increasing to and sustained at around 8% (2017-2020 four-year average of 1.7% on a reported basis), 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
The 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
CMBC's IDRs are directly linked to
ESG Considerations
CMBC 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
China Minsheng Banking Corp., 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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