According to sources with Fitch Ratings, Fitch affirmed Monday the Individual and Support ratings of four Chinese banks as follows��Agricultural Bank of China: Individual 'E' and Support '1'; China Everbright Bank: Individual 'E' and Support '3'; Guangdong Development Bank: Individual 'E' and Support '4'; and Shenzhen Development Bank: Individual 'D/E' and Support '4'.

Agricultural Bank of China's ("ABC") Individual 'E' rating reflects the bank's deep-rooted asset quality issues, low capital and earnings, and underdeveloped risk management. ABC is the last of China's Big Four banks to undergo major restructuring.

Following this completion, financial parameters will improve noticeably, although Fitch foresees the bank still facing an uphill battle transitioning to a more commercial footing in an increasingly competitive environment.

Encouragingly, risk management practices are improving, although ABC's financial metrics still remain the weakest among China's nationwide commercial banks.

The bank's '1' Support rating indicates a very high likelihood of government support in the event of stress, reflecting the bank's 100percent state ownership and large 13 percent share of banking system assets.

Meanwhile, China Everbright Bank's ("CEB") Individual 'E' rating reflects its still weak, though improving, financial profile, and continued poor public transparency and disclosure. CEB is also in the process of undergoing major restructuring and is waiting in queue for government support.

While financial metrics should improve dramatically upon receipt of government assistance, Fitch notes that CEB's cost base is also comparatively high and must be trimmed in order to boost ROA from its 2001 to 2003 average of just 0.1 percent. Furthermore, CEB's large stock of non-performing loans is also a major weakness.

CEB's Support rating of '3' signals a fairly high probability of support from its parent, China Everbright Group ("CEG"), and ultimately the government in the event of stress, reflecting CEG's status as an important commercial entity under China's State Council.

Guangdong Development Bank's ("GDB") Individual 'E' rating reflects its very weak profitability, large stock of NPLs, low capital, and poor disclosure. Return on assets remains very low at 0.03 percent due to high expenses and falling net interest revenue, resulting from the bank's large overhang of problem loans. NPLs as a share of total loans rose 2 ppts to 16.6 percent in 2004 (by Chinese accounting standards), while the ratio of equity to assets declined to 1.5 percent.

Fitch considers the sale of more than 80 percent of the bank's shares to a foreign-led consortium to be credit positive. GDB's '4' Support rating indicates a limited probability of full and timely regulatory support in the event of stress, reflecting the bank's small market share, the absence of direct government ownership, and the impending sale of a majority stake to a foreign-led consortium.

Finally, Shenzhen Development Bank's ("SZDB") Individual 'D/E' rating reflects its weak credit profile, including sizeable undercapitalization and weak asset quality relative to peers. The recent failure of the bank's non-tradable share reform proposal has placed negative pressure on its rating, as additional capital cannot be raised until the reform is completed.

SZDB's capital adequacy improved in 2005, with the bank's total capital adequacy ratio rising to 3.7 percent from 2.3 percent the prior year. However, this ratio remains well below the regulatory requirement of 8 percent. Fitch considers the efforts being made by Newbridge to revive SZDB's operations to be credit positive, although the presence of foreign management in and of itself does not outweigh the bank's challenges. SZDB's '4' Support rating signals a limited probability of full and timely support in the event of stress, reflecting the bank's small market share and less than 1 percent state ownership.

By People's Daily Online