China Bank notches higher rating for foreign currency banking activities

China Banking Corp. (China Bank) has been given a higher rating for its foreign currency banking activities by Capital Intelligence Ltd. (CI), a Cyprus-based credit rating agency.

CI upgraded China Bank’s foreign currency long-term rating from "B+" to "BB-".

CI is a leading credit rating agency specializing in the analysis and ratings of counter-party credit risk of financial institutions. Its clients and subscribers include over 360 financial institutions and corporates in 39 countries.

The rating means financial strength was maintained at "BB" while outlook remains "stable". This rating was attributed to China Bank’s strong capital adequacy ratio (CAR), liquid balance sheet, and a high level of loan-loss coverage.

According to a March 2004 report, CI analysts Arthur Kwan and Darren Stubing said: "China Bank utilized the much improved earnings from both 2002 and 2003 to contain its bad loans through increasing provision charges, with the loan-loss reserves to NPLs (non-performing loans) rising to above 70 percent (and that to unsecured NPLs over 200 percent). The Bank also keeps the bulk of its profit internally."

The CI report said that while gains from trading government securities could be lower, other non-interest income such as fees and commissions as well as earnings from trust activities should continue to grow.

China Bank reported a loan-loss coverage ratio of 76 percent, the highest among universal banks in the country. Loan-loss reserves to unsecured NPLs also improved significantly to 206 percent from 168 percent at end—2001.

It expects to overshoot the P2.2 billion target profit for 2004. Major profit drivers are expected from loan expansion, low cost deposit generation and new businesses in cash management and remittances services.