Fitch Ratings has today upgraded the Individual ratings of the Bank of China ("BOC"), China Construction Bank ("CCB") and the Bank of Communications ("BCOM") to 'D' from 'D/E'. At the same time, Fitch also assigned CCB a Long-term foreign currency rating of 'A-' (A minus) with a Stable Outlook and a Short-term foreign currency rating of 'F2'. The agency also affirmed its other ratings on these banks as follows.

--- BOC: Long-term foreign currency 'A-' (A minus), Outlook Stable, Short-term 'F2', Support '1';

--- CCB: Support '1';

--- BCOM: Support '2'.

The removal of the 'E' element in the banks' Individual ratings indicates that they no longer have a need for external support. As detailed in the soon-to-be published reports on these three banks, in each case this has arisen out of similar factors - i.e. improved balance sheet strength following recapitalisations and NPL carve-outs, and improved operational development across a range of key areas including risk management, audit, information technology, corporate governance and transparency. This was in line with these banks' preparations for public listings (completed in the case of BCOM and CCB, and soon-to-be completed in the case of BOC). And while much remains to be done in regards to operational development, progress should continue given the presence of strategic shareholders in each of these banks - HSBC in the case of BCOM, Bank of America for CCB, and the Royal Bank of Scotland for BOC.

While the agency is generally satisfied with the adequacy of the banks' current financial positions, Fitch nonetheless sounded a note of caution on profits and capital adequacy.

"We still consider the profitability and capital levels of these banks as somewhat limited in the light of their emerging market environment," said David Marshall, head of financial institutions for the Asia-Pacific region. "Furthermore, we note that the improvement in the banks' balance sheet strength was largely achieved by one-off assistance from the government, and that concerns over asset quality going forward remain," added Mr. Marshall. He further noted that the banks' Individual ratings remain currently constrained at 'D' owing to the banks' fairly strong loans growth over recent years when their credit risk management capabilities were still quite rudimentary, as well as their still relatively high levels of weak "Special Mention" credits - factors which could be compounded by any significant and sustained slowdown in China's economy.

By People's Daily Online