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China Construction Bank (Asia) Corp. Ltd. -- Moody's affirms CCB Asia's ratings; outlook remains stable

Rating Action: Moody's affirms CCB Asia's ratings; outlook remains stableGlobal Credit Research - 13 Dec 2021Hong Kong, December 13, 2021 -- Moody's Investors Service ("Moody's") has affirmed China Construction Bank (Asia) Corp. Ltd. (CCB Asia)'s long-term deposit and senior unsecured ratings at A1.Moody's has also affirmed the bank's Baseline Credit Assessment (BCA) and Adjusted BCA at baa1, and affirmed the bank's Counterparty Risk Ratings (CRR) at A1/P-1 and Counterparty Risk Assessment (CR Assessment) at A1 (cr)/P-1(cr).The outlook on CCB Asia's ratings remains stable. Moody's expects the bank to maintain good liquidity and strong capitalization, and improve its asset quality and profitability as the economy continue to recover in the next 12-18 months. Moody's also expects the bank to continue to benefit from strong indirect support from the Chinese government.A list of affected ratings can be found at the end of the press release.RATINGS RATIONALEThe affirmation of CCB Asia's A1 deposit and senior unsecured ratings with stable outlook and the baa1 BCA takes into account the bank's good funding, good asset risk, and strong liquidity and capitalization, as well as its modest profitability.CCB Asia relies principally on customer deposits to fund its operations and has large holdings of liquid assets. The bank maintained conservative loan to deposit ratio of 76% as of the end of June 2021. The bank's good liquidity and funding will allow it to meet the demands of potential unexpected fund outflows.CCB Asia's Common Equity Tier 1 (CET1) ratio was 15.6% as of the end of June 2021. The bank's capitalization remained strong despite a material loan growth pickup in first half 2021. Moody's expects the bank to maintain strong capitalization through 2022.CCB Asia's problem loan ratio improved modestly to 1.0% in first half 2021 as the local economy partially recovered from the recession caused by the pandemic. Moody's expects the bank's impaired loan ratio to decline further through 2022 as the economy of Hong Kong SAR, China continues to grow. The bank maintained very high loan loss reserve coverage ratio of 113% at the end of June 2021.Low market interest rates and high loan loss provisions weighed on CCB Asia's profitability in H1 2021. Moody's expects the bank's profitability to improve into 2022, driven by decreasing credit costs.Moody's does not incorporate affiliate support uplift for the bank, leaving its Adjusted BCA at baa1 because the bank has the same BCA as its parent.Moody's Advanced Loss Given Failure (LGF) analysis for the bank considers potential loss-absorption by junior capital instruments in a future non-viability scenario, which should reduce expected losses for more senior creditors. The LGF analysis leads to one notch of uplift for the bank's deposit and senior unsecured ratings, and three notches of uplift for the bank's CR Assessment and CRR.Moody's incorporates a very high level of indirect government support for the bank from the Chinese government that flows through its parent China Construction Bank Corporation (CCB, A1 stable, baa1). The expected support reflects the Chinese government's majority ownership of CCB, CCB's systemic importance to the Chinese banking system as one of the largest commercial banks in China, and CCB Asia's strategic importance to CCB. Moody's expectation of government support leads to two notches of uplift in the bank's deposit and senior unsecured ratings.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSCCB Asia's deposit rating could be upgraded if the Chinese government's rating is upgraded.The bank's BCA could be upgraded if it maintains its capitalization, with CET1 ratio above 15%, its problem loan ratio falls below 0.5%, or its return on average assets improves above 0.8% on a sustained basis.CCB Asia's deposit and senior unsecured debt ratings could be downgraded if the Chinese government's willingness or capacity to support diminishes or CCB's ratings are downgraded, given close linkages between the bank and its parent.The bank's BCA could be downgraded if strong growth leads to a weakening in its capitalization, with its CET1 ratio falling below 11%; its mainland exposures grow to account for a significantly higher share of overall loans; or there is a significant deterioration in its asset-quality metrics, with problem loan ratio rising above 3%.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.China Construction Bank (Asia) Corp. Ltd., headquartered in Hong Kong, reported total assets of HKD512 billion (USD 66 billion) as of end of June 2021.LIST OF AFFECTED RATINGS..Issuer: China Construction Bank (Asia) Corp. Ltd..... Baseline Credit Assessment, Affirmed baa1.... Adjusted Baseline Credit Assessment, Affirmed baa1.... Long-term Counterparty Risk Assessment, Affirmed A1(cr).... Short-term Counterparty Risk Assessment, Affirmed P-1(cr).... Long-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed A1.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1....Long-term Bank Deposit Rating (Foreign and Local Currency), Affirmed A1, Outlook remains stable.... Short-term Bank Deposit Rating (Foreign and Local Currency), Affirmed P-1....Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed A1, Outlook remains stable....Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)A1....Other Short-term Medium-Term Note Program (Foreign Currency), Affirmed (P)P-1....Long-term Senior Unsecured Deposit Program (Local Currency), Affirmed (P)A1....Short-term Senior Unsecured Deposit Program (Local Currency), Affirmed (P)P-1 ....Outlook, Remains Stable REGULATORY DISCLOSURES For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provide[s] Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating. Sonny Hsu, CFA VP - Senior Credit Officer Financial Institutions Group Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Sophia Lee, CFA Associate Managing Director Financial Institutions Group JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. 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Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). 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