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Moody's upgrades China Guangfa Bank on higher support from China Life

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Moody's upgrades China Guangfa Bank on higher support from China Life

Moody's upgraded China Guangfa Bank Co. Ltd.'s ratings in view of higher support available to the bank from its largest shareholder China Life Insurance Co. Ltd. and the Chinese government.

The bank's long-term and short-term foreign currency deposit ratings were upgraded to Baa3/P-3 from Ba1/NP. At the same time, Moody's affirmed the bank's baseline credit assessment at "ba3" and upgraded its adjusted baseline credit assessment to "ba1" from "ba3". Its counterparty risk assessment was raised to Baa2(cr)/P-2(cr) from Ba1(cr)/NP(cr).

The outlook on all the ratings is stable.

The rating agency on Jan. 19 said that the ratings action concluded its review of the bank's ratings for upgrade initiated in October 2016. The review was triggered by China Life's acquisition of an additional 23.686% stake in China Guangfa Bank, thereby bringing its total shareholding in the bank to 43.686%.

The upgrade was driven by the bank's strategic importance to China Life and parent China Life Insurance (Group) Co., increasing cooperation between the companies and China Life's strong capacity to support the bank.

Moody's could further upgrade China Guangfa Bank's ratings if there is an increase in the bank's strategic importance to China Life Insurance (Group). The lender's baseline credit assessment is unlikely to be raised in the next 12 to 18 months, owing to the challenging operating environment in China. However, the rating could be upgraded if its operating environment, asset quality, profitability and funding profile improve.

Conversely, a reduction in the bank's strategic importance to China Life Insurance (Group) would put negative pressure on the bank's ratings, Moody's noted.