Global ratings agency, Fitch ratings, affirmed in October 2009 the national long term rating of “AA-” of China Banking Corporation (China Bank) and its individual rating of C/D. The Bank’s “BB” rating for long-term foreign currency and local currency issuer default rating (IDR) and “stable” rating for credit rating outlook for both long-term local and foreign debt grade were also maintained.

According to the credit watchdog, the ratings reflect China Bank’s good earnings and balance-sheet strength, “Satisfactory earnings capacity and capitalization are mitigating factors in preserving the Bank’s credit profile,” the Fitch report said. Fitch noted that despite challenging economic conditions, China Bank’s gross non-performing loans (NPL) ratio remained relatively stable at 7.6% at the end of the first half of 2009. The report continues, “China Bank’s pre-provision profits could absorb a fairly high level of credit costs, of about 3% of gross loans based on the agency’s stress assumptions. Actual credit costs were about 160bp in H109, although most of these were to improve reserve cover rather than as a result of any perceptible rise in NPLs. Positively, thanks to the rebound in trading gains and improved margins, the credit costs tolerance is potentially higher, at 5.4% of gross loans based on H109’s results.”

Although China Bank incurred some trading losses due to rising interest rates around mid-2008, Fitch remarked that “its performance was better than that of most Philippine banks,” citing the Bank’s return on assets (ROA) of 1.5% in 2008 which was almost twice the industry average of 0.8%, a performance underpinned by a better-spread revenue base and good cost efficiency.

Fitch also found the Bank’s total capital adequacy ratio (CAR) of 13.4% at end-H109 (mostly Tier 1) to be satisfactory and notes that “this indicates that the Bank has adequate loss absorption capacity in the difficult operating environment, better than that of many of its rated peers.”

Established in 1920 by a group of Chinese-Filipino businessmen, China Bank is one of the Philippines’ oldest banks and is now the ninth largest bank in the country. Since 2005, China Bank has been expanding its footprint, embarking on an aggressive branch expansion campaign to double its branch network to 300 by 2010, from 141 at end-2005; as a result, the Bank’s balance sheet likewise expanded, a 21% loan growth and a 24% increase in deposits were posted in 2008.