CHINA'S two major state banks have defended their ability to service foreign loans, following the markdown of their debt ratings by Moody's Investors Service. An official from the Ministry of Finance (MOF) also called on the credit rating agency to do a more in-depth analysis of the situation: 'China should be given a fair level with regard to borrowing status. The commercialisation of the banks is a process that takes time. We certainly didn't expect this.' The Bank of China (BOC) was one of four state banks, including the Bank of Communications, People's Construction Bank and Industrial and Commercial Bank of China, which suffered a long-term debt ratings downgrading from A3 to Baa1. Guangdong International Trust and Investment Corp (GITIC) received a similar downgrade and the giant Chinese investment conglomerate China International Trust and Investment Corp (CITIC) was put on review for a downgrade. In Beijing, the BOC expressed deep regret over the markdown. 'The BOC has maintained a good reputation among international financial associates with its steady management style, excellent management achievements, its powerful capital strength and staunch support from the state,' the bank said in a statement. The BOC is likely to suffer the most among the four banks. The most active in the market, it will be pay more for its money. To counter the assessment by Moody's and to calm foreign counterparts, the BOC said it would not change its position as a state-owned bank and major channel for raising foreign loans, whatever assessment was given by the outside world. 'In the past, the BOC has raised foreign funds in the international market on behalf of the country. Without question, the BOC will meet its debt-service obligations. At the same time, all these debts will be guaranteed by the state,' it said. In Shanghai, the Bank of Communications was also caught off guard by the downgrading. 'It's surprising because our overall financial standing today is much healthier than that of last October when Moody's began assessing us,' said Tao Shenchang, the bank's general manager (international banking). When the bank issued 12 billion yen (about HK$1.12 billion) worth of bonds in Japan in November, Mr Tao said it was given an A3 rating. And when accountants Price Waterhouse, hired by the People's Bank of China, did an overall assessment of its financial health, the Bank of Communications received an 'above average' assessment, the second highest after 'outstanding'. 'That in itself is a good assessment of our financial standing and so I am puzzled why Moody's lumped us together with the other three specialised banks.' Mr Tao said the bank, a commercial bank, was different from the other specialised banks in China in terms of shareholding structure and loan policy. 'Unlike the specialised banks - and I think this is the most prominent difference - the Bank of Communications did not have to make policy loans based on national objectives.' He said the bank's loan policy was to access projects on their financial viability, so the quality of the assets was reasonably strong. For instance, the ratio of unhealthy loans to total assets was 0.36 per cent. While the downgrading came as a surprise to Chinese finance officials, others saw it coming. 'Actually, it's quite understandable. Many people know the non-bank financial institutions as well as the banks are having problems right now,' said a Chinese banker in Beijing. 'The downgrading of the BOC was somewhat surprising but it shouldn't come wholly unexpected. 'Fortunately CITIC still has some time.' The banker said problems of triangular debt between enterprises were a major concern. In addition, trading activities and the transformation of state banks to commercial entities were problematic given the current economic environment in China. Other problems to have caused worries amongst foreign bankers were the amount of non-performing debt and concern over derivatives trading. 'We no longer evaluate risk in China by the China Inc concept. We now look at each loan with much more scrutiny, we have to,' said a foreign banker. Some employees and practitioners also saw the downgrading as no surprise. 'GITIC is a very poor performer where payment is concerned. In fact, we used to call our boss Mr Turnover because he was so capable of turning over debt without making repayments,' said a former GITIC employee.