Moody's Affirms China Guangfa Bank's Long-Term/Short-Term Local and Foreign Currency Deposit Ratings

Strategic Insights -

Moody's Ratings has affirmed China Guangfa Bank Co., Ltd.'s long-term/short-term local and foreign currency deposit ratings of Baa3/P-3, basing its decision on the bank's steady asset quality, capitalization, profitability, and liquidity over the next 12-18 months. The affirmation also reflects the bank's largest shareholder, China Life Insurance Co Ltd, and the Government of China's continued willingness and capacity to support the bank. CGB's ba3 Baseline Credit Assessment (BCA) reflects its improved capital position and adequate liquid resources, but also its relatively high asset risk and weak profitability.

Key Takeaways:

  • Moody's expects China Guangfa Bank to maintain steady asset quality, capitalization, profitability, and liquidity over the next 12-18 months.
  • The bank's ba3 BCA reflects its improved capital position and adequate liquid resources, but also its relatively high asset risk and weak profitability.
  • CGB's asset quality is a concern due to its unseasoned risks in financing China's economic transition and high concentration in credit card receivables.
  • The bank's loan growth has slowed significantly since 2022, but green loans, loans to the manufacturing sector, and inclusive financing loans grew fast in 2024.
  • CGB's common equity tier 1 (CET1) capital ratio increased to 9.67% as of 31 December 2024, meeting the required capital buffer of 0.25% for a domestic systemically important bank (D-SIB).
  • The bank's return on average asset (ROAA) is likely to remain weak at around 0.4% over the next 12-18 months.
  • Moody's considers China Guangfa Bank's systemic importance and assumes a moderate probability of affiliate support from China Life and government support in times of need.
  • The bank's rating is based on China's Moderate+ Banking System Macro Profile, with a high probability of affiliate support from China Life and a moderate probability of support from the Government of China.
  • The bank's Baseline Credit Assessment (BCA) is set two notches below the initial Financial Profile score of ba1 to reflect its unseasoned risks and concentration risk from credit card receivables.

Statistics:

  • Moody's has affirmed China Guangfa Bank's long-term/short-term local and foreign currency deposit ratings of Baa3/P-3.
  • CGB's common equity tier 1 (CET1) capital ratio increased to 9.67% as of 31 December 2024.
  • The bank's loan growth slowed to 2.8% in 2024, but green loans, loans to the manufacturing sector, and inclusive financing loans grew fast at 42%, 18%, and 10% respectively.
  • CGB's asset quality is a concern due to its unseasoned risks in financing China's economic transition and high concentration in credit card receivables.
  • The bank's return on average asset (ROAA) is likely to remain weak at around 0.4% over the next 12-18 months.
  • Moody's considers China Guangfa Bank's systemic importance and assumes a moderate probability of affiliate support from China Life and government support in times of need.

Sources:

  • Moody's Investors Service: Moody's Ratings Affirms China Guangfa Bank Co., Ltd. Ratings.
  • Moody's Investors Service: Banks Methodology, published in November 2024 and available at https://ratings.moodys.com/rmc-documents/432741.