Moody's neutral on BOC plan
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The impact from Bank of China's latest capital-raising plan on its long-term credit standing will be "neutral at best" as BOC would want to avoid a rampant growth in loans as this may lead to an asset deterioration, said Moody's Investors Service Monday.
"A successful fund raising in itself would be an immediate positive for the bank's credit standing," said Yvonne Zhang, vice president and senior analyst at Moody's. "However, we view the long-term credit impact of the bank's plan to be neutral at best."
This is because Moody's expects BOC to redeploy this capital to support loan growth in 2010.
"In fact, the bank's credit standing would be hurt if loan growth is excessive and lead to deterioration in loan quality," Zhang said.
On January 22, the Beijing-based bank announced an offering of new shares in Hong Kong or Shanghai of up to 20 percent of its total stake. A plan to issue convertible bonds of up to 40 billion yuan (US$5.86 billion) was also announced. Both plans require shareholders' approval.
The bank is the country's biggest foreign exchange lender with a strong presence in overseas business, which caused it to suffer heavier losses than its domestic peers in the worst financial fallout since World War II. BOC has since adjusted its strategy and now seeks a bigger share of the domestic market.
Moody's estimated that BOC's loan growth hit 50 percent in 2009 on the flood of credit, against an industry average of 30 percent rise.
"In 2010, industry-wide loan growth is expected to be around 20 percent. We expect BOC would want its loan growth to at least match this average," she said.
Moody's expects BOC to post a mid-teen loan growth in 2010, below the average.
