Three Chinese state-run financial institutions' equity investment in Bank of Jinzhou Co. Ltd. is credit positive for the bank's creditors as the new investors could facilitate further measures to strengthen the troubled bank's balance sheet and operations, Moody's said.
In late July, Industrial & Commercial Bank of China Ltd. unit ICBC Financial Asset Investment Co. Ltd. agreed to acquire a 10.82% stake in Bank of Jinzhou for up to 3 billion yuan, while China Cinda Asset Management Co. Ltd. unit Cinda Investment Co. Ltd. agreed to buy a 6.49% stake in the bank for an undisclosed sum. China Great Wall Asset Management Co. Ltd. reportedly agreed to acquire a stake in Bank of Jinzhou. The asset manager has not confirmed the deal.
The rating agency said the share sale is also positive for other financially distressed regional banks because it shows that Chinese authorities are focused on reducing potential contagion from failing regional banks. Though the stakes were sold at quite a deep discount, the sale by some of the bank's original shareholders could increase the risk of moral hazard, it added.
Meanwhile, the investment in Bank of Jinzhou is credit negative for the stand-alone credit profiles of China Cinda and China Great Wall, Moody's said. It noted that the two companies' equity investments in the bank have a risk weighting of 250% and the resulting capital pressure will limit their capacity to support other distressed banks through equity investment.
As of July 31, US$1 was equivalent to 6.88 Chinese yuan.