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Shanghai Pudong Development Bank ‘BBB/A-2’ Ratings Affirmed On Strong Government Support; Outlook Stable

หน้าแรก > ข่าวธุรกิจ > Shanghai Pudong Development Bank ‘BBB/A-2’ Ratings Affirmed On Strong Government Support; Outlook Stable
ผู้โพส : Admin / วันที่โพส : 2018-03-14 11:15:06
คำค้นหา : S&P Global Ratings Keyword: S&P Standard & Poor's


Shanghai Pudong Development Bank ‘BBB/A-2’ Ratings Affirmed On Strong Government Support; Outlook Stable




          HONG KONG (S&P Global Ratings) March 13, 2018--S&P Global Ratings today affirmed its 'BBB' long-term and 'A-2' short-term issuer credit rating on Shanghai Pudong Development Bank Co. Ltd. (SPDB). Our outlook on the long-term rating is stable. We also affirmed our long-term and short-term issue ratings on all senior unsecured debt issued by SPDB. 
          We affirmed our ratings on SPDB because we expect stronger extraordinary support from the Shanghai municipal government to cushion the bank's stand-alone credit profile (SACP). The rating on SPDB is three notches above the bank's SACP of 'bb' to reflect a high likelihood that the Shanghai municipal government would provide timely and sufficient extraordinary support in case of need. 
          In our view, the Shanghai municipal government's financial capacity has improved the city's credit standing. We believe robust revenue growth supported by Shanghai's strong economy will help the municipal government maintain its budget surplus and stabilize its debt burden. 

          We also believe the Shanghai government has a high likelihood of providing extraordinary support to SPDB. This reflects the following factors: 
          - SPDB is the leading commercial bank in which the Shanghai government has a controlling influence as the largest shareholder. The bank plays an important role in providing significant fiscal revenue to the government. SPDB represents a third of the total assets of Shanghai state-owned enterprises (SOEs) and a quarter of their net profits by our estimates. The bank is important to the government because it plays a key role in executing the policy vision to develop Shanghai into an international financial center. An example of this includes the government-engineered acquisition of Shanghai International Trust by SPDB in 2016. 
          - SPDB has very strong linkages with the Shanghai municipal government as reflected in the government's effective control over the bank's nomination of senior management and setting of key strategies. The government is the largest single shareholder, though it owns just 29.67% of the shares, through a number of SOEs. We believe this ownership relationship is long-term and strategic. We view the private capital placement of Chinese renminbi (RMB) 14.8 billion in shares to the government in 2017 is a further enhancement of Shanghai government's linkage with SPDB. 

          At the same time, we continue to see SPDB as having a moderately high likelihood of receiving extraordinary government support from China's central government. This is based on our view of the bank's moderate systemic importance to the banking sector in China. We expect any extraordinary support from the Chinese central government to go through the Shanghai municipal government or take the form of concerted efforts. 
          SPDB's credit and financial performance continue to support its SACP despite heightened regulatory risks on China's shadow banking activities and certain risk management practices in the industry. The bank's reported return on average assets (ROAA) of 14.4% in 2017 and nonperforming loan (NPL) ratio of 2.14% at the end of 2017 represented a slippage from previous year, but were broadly in line with our forecast. 
          Our credit metrics already reflect financial fallout from a high-profile regulatory violation uncovered at the bank's Chengdu Branch earlier this year. According to a China Banking Regulatory Commission (CBRC) announcement on Jan 19, 2018, Chengdu Branch officials issued RMB77.5 billion of credits to 1,493 "shell companies" through falsified loan applications and various other means over several years, to cover up NPLs. The Chengdu branch incident highlights potential gaps in the bank's risk governance, which could constrain the bank's SACP. It appears that the bank's internal controls failed to flag the regulatory violation. 
          We expect SPDB's risk-adjusted capital (RAC) ratio to remain under pressure and stay at 4.0%-4.5% over the next two years. This takes into consideration the bank's RMB 14.83 billion capital placement in September 2017, and its adequate, albeit weakened, profitability in 2017. 
          The stable outlook on SPDB reflects our expectation that extraordinary support from the Shanghai municipal government will provide cushion to the pressure on the bank's capitalization over the next two years. We also expect SPDB's asset quality to slip but remain at least comparable with the industry average over the period.
          We could lower the ratings if SPDB's capitalization worsens and its credit quality deteriorates to a level below the industry average with little prospect of improvement. Its capitalization could worsen if include: (1) the bank's credit grows much faster than our forecast of 10%. 
          Indications of deteriorating asset quality could be a faster-than-industry average growth in the following: (1) the sum of reported NPLs and special-mention loan (SML) ratios; or (2) credit-loss metrics such as the ratios of credit provisions or net charge-offs to total loans.
          We could also lower our ratings if the bank's role to the Shanghai economy or linkage with the Shanghai municipal government weakens. This could happen if Shanghai SASAC's control over SPDB lessens materially.
          We could raise the rating if we believe the bank's RAC ratio will stay substantially above 5% over the next two years, and that SPDB will maintain credit quality comparable to its peers.
 
 
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