Agricultural Bank of China, the mainland's third-largest lender, may earn a higher credit rating from Moody's Investors Service after receiving a US$19 billion capital injection from the government.
Moody's yesterday affirmed all ratings of the lender and changed the outlook on its 'bank financial strength rating' to positive from stable. The bank is currently rated 'E' by Moody's, the second-lowest level.
The action does not affect the bank's A1/Prime-1 foreign currency deposit ratings, which maintain their stable outlook.
The rating action followed the State Council's approval of the bank's restructuring on Tuesday, the last of the big four state-owned lenders to be recapitalised, paving the way for the bank's eventual listing.
'The change in outlook on its financial strength rating reflects the fact that the pending restructuring will raise the bank's economic solvency,' said Richard Lung, a Moody's vice-president and senior analyst.
'In particular, the transfer of most of the bank's non-performing loans to a new fund will reduce the need for it to continue relying on external support.'
The overhaul will entail a capital injection of US$19 billion from Central Huijin Investment, an arm of the nation's US$200 billion sovereign wealth fund. It also will have 800 billion yuan (HK$905.92 billion) of bad loans taken off its balance sheet and transferred to a new fund jointly administered by the bank and the Ministry of Finance.
'However, financial restructuring, while a necessary precondition, may not by itself be sufficient to warrant an upgrade in the bank's [strength rating],' Mr Lung said.
Greater details would be needed to show that retained loans posed no near-term threat to its improved solvency, and progress on enhancing risk management, corporate governance and internal controls had fundamentally changed the bank's credit dynamics, he said.
'It remains to be seen whether this proposed carve-out has set it on the path to a stronger sustainable financial profile.'