Rating Action: Moody's affirms China CITIC Bank's Baa2/P-2 deposit ratings; outlook stableGlobal Credit Research - 16 Dec 2021Hong Kong, December 16, 2021 -- Moody's Investors Service has affirmed China CITIC Bank Corporation Limited's (CITICB) long-term and short-term foreign currency deposit ratings at Baa2/P-2, its Baseline Credit Assessment (BCA) and Adjusted BCA at ba2, its long-term and short-term Counterparty Risk Assessment (CR Assessment) at Baa2(cr)/P-2(cr), its long-term and short-term local currency and foreign currency Counterparty Risk Rating (CRR) at Baa2/P-2, and its foreign currency senior unsecured debt rating at Baa2.The outlook on the ratings remains stable.A list of all affected ratings and assessments is provided at the end of this press release.RATINGS RATIONALEThe affirmation of CITICB's ba2 BCA and Baa2 deposit ratings reflects the bank's stable asset quality, sound profitability and steady funding profile. Moody's expects the bank will continue to hold adequate liquid resources to cover its market funds/tangible banking assets. However, the bank's capitalization remains modest, despite recent development.Moody's expects CITICB's asset quality to remain stable, benefiting from its increased exposure of the retail banking business. However, the formation of new nonperforming loans (NPLs) remains a risk to CITICB's asset quality because of potential transitional risks from the structural adjustment in China's economic growth model, especially the increasing pressure on China's property market. Retails loans accounted for 41.3% of gross loans as of 30 September 2021, up from only 26.4% at the end of 2015. As of 30 September 2021, the bank's reported NPL ratio was 1.48%, a decrease from 1.64% as of the end of 2020. As of 30 September 2021, the bank's NPL coverage ratio was 184.6%, up from 171.7% as of the end of 2020.Moody's believes CITICB is able to manage the risk associated with the correction in China's property market because its exposures to property developers are not substantial. As of 30 June 2021, CITICB's exposures to property development loans equal to 6.3% of gross loans, lower than peer banks that Moody's rates. However, in Moody's view, the bank is subject to reputational risk from the property-related off-balance sheet businesses of which it does not bear credit risks, such as wealth management funds, entrusted loans, agency distribution of trust schemes under the active management by cooperative institutions, and debt-financing instruments with CITICB as the lead underwriter.CITICB has improved its capital position in recent years, supported by its moderate risk-weighted asset growth and steady profitability. Moody's expect the bank to maintain its tangible common equity/risk-weighted Assets (RWA) above 8.0% for next 12 to 18 months. The bank's Common Equity Tier 1 (CET1) capital ratio was 8.8% as of 30 September 2021. It is the fourth-largest joint stock commercial bank in China and is on the domestic systematic important banks (D-SIBs) list, and thus is required to adhere to the additional CET-1 requirement of 50 basis points.Moody's expects CITICB to maintain its profitability for next 12-18 months with return on average assets at 0.7-0.8%, supported by decreasing credit costs from the high level in 2020 and the bank's well-managed operating expenses. However, its net interest margin (NIM) faces downward pressure because of the government's guidance to lower loan pricing to support real economy. CITICB's NIM was in line with the sector average at 2.06% for the first three quarters of 2021.CITICB will continue to maintain adequate liquid resources to cover its use of market funds. The bank has kept its ratio of market funds to tangible banking assets at a stable level of 29%-30% since 2016.CITICB's rating is based on China's Moderate+ Banking System Macro Profile. CITICB's current deposit rating of Baa2 incorporates the bank's ba2 BCA and a three-notch uplift, based on Moody's assessment of a very high level of government support for the bank in times of need. CITICB's Adjusted BCA, which incorporates no uplift of affiliate support, is at the same level as its BCA. China does not have an operational bank resolution regime. Therefore, Moody's applies a basic Loss Given Failure (LGF) approach in rating Chinese banks' securities.Moody's assessment of a very high level of government support is driven by the bank's position as one of 19 domestic systematic importance banks in China, with a nationwide deposit market share of 2.5% as of 30 September 2021; and the 65.97% ownership of CITICB through the wholly-state-owned CITIC Group Corporation.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's could upgrade the bank's ratings if it assesses that the Chinese government's capacity to support the bank strengthens, as reflected by an upgrade of China's sovereign rating, or if the bank's BCA is upgraded.Moody's could upgrade the BCA if the bank's asset quality, as measured by problem loans/gross loans, remains unaffected by the structural adjustments in China's economy; its profitability remains resilient, with its return on average assets consistently above 0.8%; its capitalization strengthens, with its Core Tier 1 capital ratio consistently above 9%; and its reliance on market funding decreases, with an improvement in its market funds/tangible banking assets.Moody's could downgrade the bank's ratings if it assesses that the Chinese government's capacity or willingness to support the bank weakens, or if the bank's BCA is downgraded.Moody's could downgrade the BCA if the bank's operating environment weakens significantly, which could arise as China's economic growth moderates further, or its corporate financial leverage continues to increase; the bank's asset quality weakens significantly; its capitalization weakens with a decline in its Core Tier 1 capital ratio to consistently below 7.5% - 8.0%; its profitability deteriorates, with its return on average assets consistently below 0.5%; its reliance on market funding increases, with an increase in its market funds/tangible banking assets.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 CITIC Bank Corporation Limited is a joint-stock commercial bank headquartered in Beijing, with total assets of RMB7,893 billion and a total equity of RMB633.5 billion as of 30 September 2021.LIST OF AFFECTED RATINGS/ASSESSMENTS FOR CITICB:- Affirmed Baa2 rating of long-term foreign currency bank deposits; outlook remains stable- Affirmed P-2 rating of short-term foreign currency bank deposits- Affirmed Baa2(cr)/P-2(cr) long-term/short-term Counterparty Risk Assessment- Affirmed Baa2/P-2 long-term/short-term local currency and foreign currency Counterparty Risk Rating- Affirmed ba2 BCA and Adjusted BCA- Affirmed Baa2 rating of long-term foreign currency senior unsecured Regular Bond/Debenture ; outlook remains stable- Outlook remains stableThe local market analyst for these ratings is Yan Li, +86 (106) 319-6561.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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