Fitch Affirms ICBCT and ICBCTL at 'AAA(tha)'; Downgrades ICBCT's Bonds

A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS

NATIONAL RATINGS AND SENIOR DEBT

The National Ratings on ICBCT are based on Fitch's expectation that Industrial and Commercial Bank of China Limited (ICBC; A/Stable), ICBCT's ultimate parent, has an extremely high propensity to provide extraordinary support to ICBCT if required. Fitch views ICBCT as a strategically important subsidiary of ICBC because of its role in providing ICBC with a footprint in Thailand, such as in facilitating bilateral trade between Thailand and China. Furthermore, the parent has a 98% stake in ICBCT, exercises management control, and integrates the subsidiary closely with the ICBC group, with full brand sharing.

The National Ratings on ICBCTL are equalised with those of its immediate parent, ICBCT, based on Fitch's belief that extraordinary support from the ultimate parent will flow through to ICBCTL via ICBCT. Fitch sees ICBCTL as a core subsidiary of ICBCT because of a very high level of integration, history of ordinary financial support, full ownership and brand sharing. ICBCTL has a key role in supporting the bank's hire purchase, finance lease and factoring business, which comprised about 38% of ICBCT's total revenue and profit in 2019. ICBCTL's senior debt is rated at the same level as its National Long- and Short-Term Ratings, as it represents the company's senior unsecured obligations.

SUBORDINATED DEBT

The downgrade of ICBCT's Basel III Tier 2 subordinated Thai baht-denominated notes is consistent with Fitch's baseline notching approach for subordinated debt in its revised Bank Rating Criteria and the rating action on the subordinated debt of other Thai-bank issuers. We believe the notes may have a poorer recovery rate than senior unsecured instruments if the issuer was to trigger the instrument's non-viability clause. There is no additional notching for incremental non-performance risk, as the notes do not incorporate going-concern loss absorption, such as coupon omission or deferral features.

RATING SENSITIVITIES

NATIONAL RATINGS AND SENIOR DEBT

Factors that could, individually or collectively, lead to positive rating action/upgrade:

There is no rating upside for ICBCT or ICBCTL, as the companies are rated at the top end of the scale.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Fitch may downgrade the ratings of ICBCT if ICBC's ability to support its subsidiary declines, as may be indicated by a downgrade in its Long-Term Foreign-Currency Issuer Default Rating, although Fitch would also assess the relative strength of ICBCT's support-driven rating relative to other entities on the Thai national rating scale.

Negative rating action may also occur on ICBCT's ratings if there is a significant reduction in ICBC's propensity to provide ICBCT with extraordinary support. This could be reflected by a reduction in ownership to below 75% or of financial support. However, Fitch sees a limited near-term probability of ICBC lowering its propensity to support ICBCT.

A downgrade of ICBCT's National Ratings would lead to a downgrade of ICBCTL's National Ratings. ICBCTL's ratings could also be downgraded if Fitch no longer believed that it was a core subsidiary of ICBCT; this could arise from a reduction in ICBCT's ownership to below 75%, if ICBCT withdraws its financial commitment or if it undertakes actions that indicate a lower propensity to provide support.

SUBORDINATED DEBT

Factors that could, individually or collectively, lead to positive rating action/upgrade:

There is no upside to ICBCT's subordinate debt ratings, as the anchor rating is already at the top end of the scale.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A downgrade of ICBCT's Long-term National Rating will lead to a lower anchor rating for the subordinated debt ratings and lead to a downgrade of the rating on the notes.

• ข่าวFitch Ratings
• ข่าวBank of China
• ข่าวo:fin
• ข่าวen