Jiuzhong Financial Newsletter, July 21Moody予Citic Bank(international) Co., Ltd. (China CITIC Bank International Limited, "CITIC Bank International") intends to issue a dollar-denominated, undated, non-cumulative and secondary AT1 capital securities "Ba2 (hyb)" rating with loss absorption function when they cannot survive. In the case of insufficient allocable reserves, the issuer may decide or force to cancel all or part of the non-cumulative allocation.
Rating motivation
The Ba2 (hyb) rating reflects: (1) Citic Bank International's benchmark Credit Assessment (BCA) and Baa2's adjusted BCA; (2) Moody's Advanced Relief loss (LGF) analysis, resulting in a three sub-level lower than the bank's adjusted BCA; and (3) Moody's assumption that the HKSAR of China is unlikely to provide support for the loss absorption tool, so the rating has not been upgraded.
Citic Bank International is bound by the Financial institutions (resolutions) regulations of the Hong Kong Special Administrative region of China. Moody's believes that the Hong Kong Special Administrative region of China uses an operational resolution mechanism.
Moody's uses Citic Bank International's loss probability as the starting point for the bank's AT1 securities rating, which takes into account potential related company support-the bank's adjusted BCA is baa2. Moody's then used its advanced LGF analysis to determine the bailout losses of AT1 Securities.
In view of the limited subordinate status of the residual equity form, senior LGF analysis shows that in view of the high losses caused by AT1 securities, which results in a sub-level lower than the bank's adjusted BCA.
In addition, Moody's rating on the AT1 securities, which has a loss absorption function when they cannot survive, includes two additional sub-downgrades to indicate the risk of coupon suspension on a non-cumulative basis.
Factors that may lead to an upgrade or downgrade of the rating
If Citic Bank's adjusted BCA is upgraded, Citic Bank International's AT1 securities rating will also be upgraded.
Given that Citic Bank International's BCA has been upgraded by three sub-levels based on its parent company's BCA, unless the parent company's BCA is up-regulated, the bank's BCA is unlikely to be up-regulated.
If the parent bank is upgraded, Citic Bank International may be upgraded.
If (1) the asset quality index of CITIC Bank International deteriorates significantly, its impairment loan ratio rises to more than 4.0%, (2) its capitalization decreases significantly, and its total common equity (TCE) / risk weighted assets (RWA) ratio falls below 11.0%, or (3) due to the continuing impact of the epidemic, the business environment in Hong Kong and the mainland of China has significantly weakened. Citic Bank International's BCA rating is likely to be downgraded.
If (1) the government supports a reduction, or the parent company's rating is downgraded, or (2) the subordinate status of subprime debt leads to higher relief losses, Citic Bank International's rating may be downgraded.
Citic Bank is headquartered in Hong Kong, China, with total assets of HK $383.9 billion at the end of 2020.