May 23, 2017 / 2:51 AM / 2 months ago

Fitch: Chinese Leasing Companies' Rapid Growth Set to Continue

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(The following statement was released by the rating agency) TAIPEI/HONG KONG, May 22 (Fitch) China's leasing industry has expanded rapidly in the past decade and Fitch Ratings expects this trend to continue, helped by favourable regulations and policy support. The leasing companies' expansion has resulted in an increase in debt issuance in international capital markets to fund assets with longer financing terms, such as aircraft, transportation, infrastructure and heavy machinery. Chinese bank leasing companies, in particular, have expanded rapidly and are the largest players in the industry, where there are more than 7,000 players compared with less than 200 in 2009. Leasing companies that are subsidiaries of banks have the benefit of capital and funding support from parents to drive growth. Fitch rates the largest industry players in China. The Issuer Default Ratings on the leasing subsidiaries of all the Fitch-rated Chinese banks are underpinned by the expectation of a high level of support from their respective parents and ultimately, from the sovereign. The leasing subsidiaries' company profiles and funding are highly linked to those of their parents and they are considered core subsidiaries of their parents. The leasing subsidiaries of banks also enjoy additional support in the form of regulation requiring banks to provide capital and liquidity support to their leasing subsidiaries in times of need, as reflected in the lessors' by-laws. As a result, any default of these banks' major subsidiaries would constitute huge reputational risk to their parents and could potentially damage the banks' franchises. Furthermore, the leasing subsidiaries are highly integrated with their parents' business, operations and risk-management systems. Risk appetite and underwriting standards of the bank leasing subsidiaries are closely aligned with those of the parents. Their corporate governance is also under strong parental influence, given the parents own 100% or majority stakes in their subsidiaries. Bank leasing subsidiaries rely heavily on short-term bank loan funding, but they benefit substantively from their parents' support, which mitigates the liquidity and refinancing risks. Regulators have loosened regulations to allow financial leasing companies to diversify their funding options. Fitch-rated leasing subsidiaries also use their overseas subsidiaries to access offshore capital markets with the benefit of guarantees or keepwell structures. Issuance is still relatively small compared with bank loans, but growing, and we expect the companies to increase their use of asset-backed securitisation and bonds to improve their funding structures. Contact: Katie Chen Director +886 2 8175 7614 Fitch Australia Pty Ltd, Taiwan Branch Suite 1306, 13/F 205 Tun Hwa North Road Taipei 105, Taiwan Jonathan Lee Senior Director +886 2 8175 7601 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Related Research Chinese Bank Leasing Subsidiaries here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. 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