Standard & Poor's has upgraded two Chinese banks, a sign it believes Beijing will protect the nation's lenders from financial threats. The ratings agency also downgraded several US and European banks. The ratings of Bank of China and China Construction Bank were raised to A from A-minus, reflecting the 'very high' likelihood of the central government supporting the lenders in the event of financial distress, S&P said yesterday after it overhauled its criteria system to reflect new threats to bank funding and government willingness to bail out creditors. Bank of America, Goldman Sachs and Citigroup had their long-term credit ratings cut to A-minus while UBS and Barclays were lowered to A and HSBC to A-plus. S&P left the ratings of 20 banks unchanged, including the Industrial and Commercial Bank of China, in announcing new ratings for 37 banking companies. The Shanghai Composite Index fell 3.27 per cent yesterday and the Hang Seng Index dropped 1.46 per cent, with the shares of most banks including the two upgraded lenders closing lower. 'The downgrading stirred panic over the exacerbation of the debt crisis and financial turmoil, which would affect the local economy,' said Yuan Zhigang, an analyst at Bozhong Investment. Credit downgrades could push up borrowing costs and drain liquidity from financial markets. In a regulatory filing last month, Bank of America said a downgrade of one level would necessitate the posting of US$5.1 billion of additional collaterals and termination payments on its trades. Yuan said the market had also been pressured by ICBC's bond issuance announcement. ICBC said on Tuesday its shareholders had approved a plan to issue up to 70 billion yuan (HK$85.4 billion) of subordinated bond to replenish capital. Fourteen Chinese banks have issued subordinated bonds totalling 207.65 billion yuan this year - 125 per cent more than last year. The banks had to raise funds to strengthen their balance sheets after a lending binge in the past two years to help fund local government infrastructure projects. There are widespread concerns that poor financial management of some local governments and insufficient cash flow from projects would cause bad loans to soar in the next few years. Guo Tianyong, a professor at the Central University of Finance and Economics, said the ratings showed major Chinese lenders had 'better liquidity conditions and financial strength' than their foreign peers. For the first nine months, BOC made a net profit of 96.3 billion yuan, up 21.5 per cent from a year ago, while Construction Bank's earnings rose 25.8 per cent to 139 billion yuan. Construction Bank said yesterday its board had nominated Wang Hongzhang, a former disciplinary chief at the central bank, as an executive director. Wang is expected to become chairman of the bank soon, replacing Guo Shuqing, who has been appointed to head the China Securities Regulatory Commission. In July, S&P said it did not expect the major Chinese commercial banks to see full-year losses although non-performing loans attributable to local government financing vehicles were expected to escalate in the next few year. The agency expects the country's real gross domestic product growth to remain close to 8 per cent over the next five years. 'The credit ratings on the sovereign and on the major commercial banks may come under downward pressure if Chinese economic growth in the next few years is significantly weaker than our expectation,' S&P said in July. 'While we consider the likelihood of this scenario to be modest, it is not insignificant.'