Dagong Global Credit Rating Co., Ltd. (hereinafter referred to as “Dagong”) has decided to revise the rating outlook of Baoshang Bank Co., Ltd. (hereinafter referred to as “Baoshang Bank”) to negative from stable, and maintain the issuer credit rating of Baoshang Bank as AA+, and maintain the bond credit rating of “15 Baoshang Bank Xiaowei 01”, “16 Baoshang Bank Xiaowei 01” as AA+, and maintain the bond credit rating of “15 Baoshang Bank Tier II Capital Bond” as AA. The debt repayment environment of Baoshang Bank is being under pressure, its wealth creation ability is seen in decline and the debt repayment sources are being vulnerable. Baoshang Bank’s debt repayment ability has downside risks in the short run.
The primary reasons for revising the rating outlook of Baoshang Bank are as follows:
1. Due to adjustment of regulatory policies, the debt repayment environment of Baoshang Bank is being under pressure. The supervision of banking industry aimed at preventing and controlling financial risks, and changing the mode of industry development, has been significantly enhanced in year 2017. A series of policies and measures aimed at managing the market chaos and offsetting the weakness of the system have been introduced. The policies and measures require banks to investigate all kinds of hidden risks, manage the exposed risks and risk events safely and orderly, and curb the market chaos and the high frequency of risk occurrences. At the same time, the capital market maintains a tight balance, and the overall cost of financing increases due to the deleveraging policy. The changes in the external debt repayment environment caused an increase of uncertainty challenge and hampered the development of Baoshang Bank’s wealth creation ability and the debt repayment sources in the short run. Baoshang Bank’s existing business model is facing the pressure of adjustment.
2. The expansion of business is hampered, and the wealth creation ability weakened. The Inner Mongolia Autonomous Region is the main business market for Baoshang Bank, but the region still faces a high pressure of growth and some enterprises in the region are difficult to operate. At the same time, the adjustment of regulatory policy restricts the development of interbank business and financial products, and the investment of Special Purpose Vehicle, etc. The market demand of Baoshang Bank’s business has been adversely affected. On the other hand, the capital adequacy level of Baoshang Bank has declined significantly, falling below the regulatory standards. The balance of its non-performing loans and the degree of non-performing loans deviation are relatively high; and the pressure on its capital supplement and credit risk management have become higher. These factors restrain and weaken Baoshang Bank’s business development and wealth creation ability. In year 2017, the operating income of Baoshang Bank dropped 3.2% and 3.9% in June and August, and its net profit dropped 10.7% and 14.5% respectively when compared with the previous year. Its wealth creation ability has seen a rapid decline.
3. The degree of deviation and the vulnerability of debt repayment sources increases. Due to the decline of profitability, the degree of deviation between the debt repayment sources and wealth creation ability of Baoshang Bank has increased. At the same time, there is a restriction on the issuance of Baoshang Bank’s long-term bonds, and the issuance of the interbank certificates of deposit is facing some uncertainty due to the regulatory policy adjustment. The difficulty of Baoshang Bank’s debt financing management will increase. In addition, its shareholding structure is diverse, and the main shareholders are private enterprises which can provide limited external support. These factors increase the vulnerability of Baoshang Bank’s debt repayment sources.
4. Debt burden increases relatively rapid, debt repayment ability has a downside risk. Baoshang Bank issued a large number of interbank deposit certificates to expand the scale of its active liability, therefore its debt burden increased relatively rapid. The debt repayment environment of Baoshang Bank is being under pressure, its wealth creation ability is seen in decline and the debt repayment sources are being vulnerable. As a result, the ability of Baoshang Bank’s debt repayment sources to cover its debt scale is seen in decline and the capacity for Baoshang Bank to issue new debts contracts, its debt repayment ability has downside risks.
The major reasons for maintaining Baoshang Bank issuer credit rating are: the level of its liquidity is generally in a high level, its significant market position will help to get the attention and support of relevant government departments and regulatory bodies which may provide a protection for its debt repayment. Therefore, Dagong maintains Baoshang Bank’s issuer credit rating and its bond credit rating. Dagong will pay close attention to the factors which may lead changes on credit rating and make timely adjustments. (END)
* The Chinese version of the press release prevails to the extent of any inconsistency between the Chinese and the English versions.