Reuters logo
Fitch Publishes Postal Savings Bank of China's 'A+' Rating; Outlook Stable
August 28, 2017 / 2:49 AM / 23 days ago

Fitch Publishes Postal Savings Bank of China's 'A+' Rating; Outlook Stable

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, August 27 (Fitch) Fitch Ratings has published Postal Savings Bank of China Co Ltd.'s (PSBC) Long-Term Issuer Default Rating (IDR) of 'A+' and Short-Term IDR of 'F1+'. The Outlook is Stable. Fitch has also published the bank's Support Rating (SR) of '1', Support Rating Floor (SRF) of 'A+', and Viability Rating (VR) of 'bb+'. KEY RATING DRIVERS IDRS, SUPPORT RATING, SUPPORT RATING FLOOR The bank's IDRs are at its SRF; the IDRs' strong linkage to China's sovereign rating (A+/Stable/F1+) reflects the extremely high probability of the central government supporting the bank in a timely manner in the event of stress. PSBC was established in 2007 as a commercial bank in China, but it effectively performs several policy-related functions and operates a unique business model through the use of direct outlets and agency outlets under China Post Group (CPG), a state conglomerate solely owned by the Ministry of Finance. The agency outlets managed under CPG are approved by the State Council and the China Banking Regulatory Commission (CBRC). Regulatory oversight of PSBC is conducted by the same department within the CBRC that regulates policy institutions. The bank is currently 68.92% owned by CPG, with the rest of the bank owned by the public after it was listed in Hong Kong in 2016 to gain access to market funding. However, CPG and the finance ministry have injected capital into PSBC over the past decade to support the bank's growth. Fitch expects CPG to maintain its majority-stake in and control over PSBC. PSBC's commercial operations are compromised by its policy focus on serving China's rural population through a network of over 39,900 outlets, the largest among Chinese banks. Many of PSBC's outlets are in the same premises as postal enterprises under CPG. The bank's customer base, at over 520 million customers, covers nearly a third of China's population. Many of the customers live in deep rural areas and would otherwise not have access to the basic financial services that the bank provides. PSBC's retail deposit base also makes it a significant net provider of liquidity in China's interbank market. PSBC plays a key role in the provision of financial services to microfinance and rural customers to support China's stimulus and urbanisation efforts to counteract domestic and external pressures. CPG has a government-protected monopoly and is responsible for the provision of nationwide postal services, as stipulated in the China Postal Law. PSBC accounted for around 98% of CPG's profits in 2016, and effectively subsidises the cost of postal services. The high integration between PSBC and its agency outlets under CPG underpins the bank's very high systemic importance, especially in rural areas. Fitch believes PSBC plays a larger policy role than other state banks. PSBC is the sixth-largest commercial bank in terms of assets and fourth-largest in terms of retail deposits, and its rural presence extends far deeper into the sub-county regions than the Agricultural Bank of China Limited (A/Stable). VIABILITY RATING PSBC's VR of 'bb+' balances its relatively lower risk appetite and stronger asset quality against its lower profitability and capitalisation compared with the state-owned commercial banks in China. PSBC's profitability and capitalisation tend to be lower because of the high operational cost of its business model, which includes paying agency fees to its parent. PSBC also benefits from a strong funding and liquidity profile, thanks to its extensive network (including agency outlets) and niche retail focus. PSBC had a loan-to-deposit ratio of only 41% at end-2016, with 85% of its deposits and 53% of loans from retail customers, a large portion who are from rural areas. While PSBC aims to increase its loan-to-deposit ratio to around 50% over the next two to three years, Fitch believes the majority of PSBC's new loans will still come from retail customers. Fitch believes PSBC's lower credit exposure (both loan and non-loan) translates into better reported asset quality relative to other state banks. PSBC's NPL and "special-mention" loans made up 1.7% of total loans at the end of 2016, below the state bank average of 5.3%. PSBC has a Fitch Core Capital ratio of 8.3%, below the 11.5% average for state banks, as its ROA of 0.5% is much lower than the state bank average of 1.1% due to its relatively low risk appetite and high operating cost leverage, which translate into lower profitability and internal capital generation. Fitch expects PSBC's capitalisation to continue to lag that of state peers, but believes this is mitigated by its lower overall risk profile and high expectations of ordinary support from the state due to its ownership and policy-related roles. RATING SENSITIVITIES IDRS, SUPPORT RATING, SUPPORT RATING FLOOR In Fitch's view, the state has a higher propensity to extend extraordinary state support to PSBC due to the bank's large policy role, both as a rural financial services provider and as a key subsidiary under CPG, compared with other state banks. However, there are differences between PSBC and China's pure policy banks in terms of ownership structure and services provided. A downgrade of the sovereign rating may result in a negative rating action to PSBC, but an upgrade of the sovereign rating may not lead to a similar rating action to the bank. Changes to the bank's ratings would be closely correlated with changes in China's sovereign rating, which was affirmed at 'A+' on 13 July 2017. Negative rating action could be taken should there be any weakening in the perceived ability or willingness of the state to support the bank, including relative to similarly rated institutions in China. This could arise from, for example, a significant fall in government ownership that results in meaningfully less policy influence, or changes in the support mechanism that affects the bank's relationship with CPG or with the state. VIABILITY RATING The bank's VRs are sensitive to a change in Fitch's assumptions regarding PSBC's asset quality. We estimate PSBC has around 16% of assets in entrusted investments (versus around 1% for state banks and 19% for mid-tier banks), which are the bank's investments in asset or wealth management products managed by other financial institutions. Fitch believes most of PSBC's entrusted investments are not credit-related in nature (i.e. potentially high risk), but an increase in PSBC's risk appetite could have a direct impact on its asset quality, and in turn lead to a downgrade in the bank's VR. Like other state banks in China, an upgrade of its VR is possible if Fitch considers the operating environment to be less of a rating constraint than it has in the past. This would likely be evident from greater certainty over regulators' commitment to prioritise containing financial risks over growth, credit growth being more sustainable, off-balance-sheet activities reducing or being less of a concern (including due to greater transparency around such activities), greater confidence that reported asset-quality ratios will hold, or the banks having improved capitalisation or strengthened profitability. That said, PSBC's business model will continue to act as a drag on its financial profile. Contact: Primary Analyst Grace Wu Senior Director +852 2263 9919 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Jaclyn Wang Associate Director +86 21 5097 3189 Committee Chairperson Ambreesh Srivastava Senior Director +65 6796 7218 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below