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ICBC Standard Bank Plc -- Moody's affirms ICBC Standard Bank Plc's deposit and issuer ratings; upgrades Baseline Credit Assessment

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Rating Action: Moody's affirms ICBC Standard Bank Plc's deposit and issuer ratings; upgrades Baseline Credit Assessment

Global Credit Research - 04 Dec 2020

London, 04 December 2020 -- Moody's Investors Service ("Moody's") today affirmed ICBC Standard Bank Plc's (ICBCS's) long- and short-term deposit ratings of Baa3/Prime-3, the bank's long-term issuer rating of Baa3, and its baa2 Adjusted Baseline Credit Assessment (BCA), while upgrading the BCA to ba3 from b1. The Counterparty Risk (CR) Assessments of Baa2 (cr)/Prime-2(cr) and Counterparty Risk Ratings (CRRs) of Baa3/Prime-3 were also affirmed. The outlooks on the bank's long-term deposit and issuer ratings remain stable, in line with the outlook on its 60% owner Industrial & Commercial Bank of China Ltd (ICBC, A1 stable, baa1).

A full list of affected ratings can be found at the end of this press release.

The rating action follows the affirmation of ICBC's rating with stable outlook on November 24, 2020 and reflects ICBCS's improved profitability and the progress it has made in executing its revised strategy.

RATINGS RATIONALE

-- BCA

Moody's upgrade of ICBCS's BCA reflects the bank's return to profitability, moderate asset risk, solid capital and strong liquidity. In 2019, the bank closed its investment banking and equities divisions and two international branches; it has simplified its business model, product offerings and operations to pursue a more focused strategy that increasingly leverages its parent's corporate customer base.

As of June 2020, ICBCS had a Tangible Common Equity over Risk Weighted Assets ratio of 15.9% up from 13.7% in June 2019, which now benefits from the Additional Tier 1 it issued to ICBC in December 2019, as well as first half year profitability, which Moody's expects to continue. Moody's view of moderate asset risk reflects market, credit and operational risks, despite no increase in problem loans year-to-date. ICBCS holds a comfortable level of liquid assets and has low reliance on external third-party market funding and a significant contribution from intragroup funding which substantially reduces refinancing risk.

ICBCS's BCA continues to be constrained by the bank's limited business diversification and its inherent opacity and complexity, like other banking entities with a material reliance on capital markets activities. This is reflected by the unchanged two negative qualitative adjustments incorporated in the BCA relative to the bank's financial profile.

-- ADJUSTED BCA

Moody's affirmation of the baa2 Adjusted BCA reflects the unchanged view of a very high probability of affiliate support from ICBC. Following the one-notch upgrade in the BCA, this results in four notches of uplift, from five previously.

-- DEPOSIT AND ISSUER RATINGS

The affirmations of ICBCS's Baa3/P-3 deposit ratings and its Baa3 long-term issuer ratings reflect the affirmation of the bank's Adjusted BCA and Moody's Advanced Loss Given Failure analysis.

Notwithstanding ICBCS's high intrinsic risk due to its focus on capital markets activities, Moody's believes that its more focused strategy and product offering would lead to lower losses at failure. ICBCS is increasingly integrated with ICBC, shifting from institutional clients towards corporate customers common to the group's franchise, while benefiting from a high level of capital and liquidity support and management oversight from ICBC. These factors would reduce the risk of a rapid loss of franchise value and the risk of employee attrition in the event of the bank's failure. These considerations led Moody's to reduce its assumption of ICBCS's loss rate at failure to 8% of tangible banking assets from 13% previously.

Notwithstanding the above, Moody's analysis indicates that ICBCS's deposits and senior debt are likely to continue to face high loss-given-failure, due to the limited amount of deposits in combination with the absence of externally issued subordinated debt following its maturity in December 2019. This results in a Preliminary Rating Assessment (PRA) of baa3 for both instruments, one notch below the level of the Adjusted BCA.

Given the bank's limited systemic importance, Moody's continues to view the probability of support for ICBCS's senior liabilities from the UK government to be low, resulting in no additional ratings uplift.

OUTLOOK

The stable outlook on ICBCS's long-term deposit and issuer ratings reflects the stable outlook on ICBC and Moody's expectation that the bank's fundamentals will remain broadly unchanged over the next 18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

ICBCS's BCA could be upgraded because of: (i) higher and more stable earnings and organic capital generation; (ii) a sustained growth in third party diversified funding sources; or (iii) further de-risking of its business model. All ratings and the long-term CR Assessment could also be upgraded if the bank were to issue a significant amount of external debt, reducing their loss-given-failure. Additionally, the long-term CR Assessment and CRRs could be upgraded following a higher sustained level of corporate deposits in its liability structure. An upgrade of the BCA could result in the upgrade of the ratings.

The bank's BCA could be downgraded because of: (i) an increase in risk appetite and / or trading losses; (ii) weaker profitability; and (iii) reduced capital and funding support from ICBC and Standard Bank Group Limited. A lower BCA may not result in a downgrade of all ratings, assuming continued very high affiliate support from ICBC.

LIST OF AFFECTED RATINGS

Issuer: ICBC Standard Bank Plc

..Upgrade:

....Baseline Credit Assessment, upgraded to ba3 from b1

..Affirmations:

....Long-term Counterparty Risk Ratings, affirmed Baa3

....Short-term Counterparty Risk Ratings, affirmed P-3

....Long-term Bank Deposits, affirmed Baa3, outlook remains Stable

....Short-term Bank Deposits, affirmed P-3

....Long-term Counterparty Risk Assessment, affirmed Baa2(cr)

....Short-term Counterparty Risk Assessment, affirmed P-2(cr)

....Long-term Issuer Ratings, affirmed Baa3, outlook remains Stable

....Adjusted Baseline Credit Assessment, affirmed baa2

....Senior Unsecured Medium-Term Note Program, affirmed (P)Baa3

..Outlook Action: ....Outlook remains Stable PRINCPIAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

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.

Arif Bekiroglu Vice President - Senior Analyst Financial Institutions Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Nicholas Hill MD - Banking Financial Institutions Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

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