Investing.com -- On Thursday, Fitch Ratings upgraded Bank of Beijing Co., Ltd.’s (BOB) Long-Term Foreign-Currency Issuer Default Rating (IDR) to ’BBB-’, from ’BB+’, indicating a stable outlook. The Government Support Rating (GSR) also received an upgrade to ’bbb-’, up from ’bb+’, and the Short-Term IDR was lifted to ’F3’ from ’B’. The Viability Rating (VR) was affirmed at ’bb-’.
This upgrade is attributed to the bank’s increasing regional significance in recent years and its close ties with the Beijing municipal government. The Long-Term IDR is influenced by the high likelihood of government support, as indicated by the GSR. This is based on a range of factors, including the relative size and regional significance of BOB, as well as the local government’s strategic ownership.
In October 2021, BOB was officially recognized as a domestic systemically important bank (D-SIB) by Chinese regulators, reinforcing its systemic importance and support prospects.
Fitch forecasts China’s GDP growth to reach 3.9% in 2025 and 3.8% in 2026, from 5.0% in 2024. This prediction takes into account near-term tariff risks and lingering domestic challenges, particularly around the property sector.
BOB has established close relationships with large state-owned enterprises in Beijing. In 2024, loans and revenue from the local area accounted for about half of BOB’s total loans and two-thirds of total revenue. However, due to management and governance issues, which are common in China, and the bank’s above-peer exposure to entrusted investment, BOB’s business profile score of ’bb’ is lower than the ’bbb’ implied category score.
BOB’s risk-profile score of ’bb-’ reflects its larger exposure to entrusted investments among mid-tier banks. However, this is mitigated by its business focus in the capital city and less direct exposure to riskier sectors, such as property development.
Fitch expects BOB to maintain a largely stable reported impaired-loan ratio (end-1Q25:1.3%) due to its continued non-performing loan resolution. The ’bb-’ asset-quality score is below the ’bbb’ category implied score to reflect the bank’s higher growth appetite as well as its weaker underwriting standards and greater exposure to shadow-banking activities relative to higher-rated peers.
Despite net interest margin pressure, Fitch expects the bank’s operating profit/risk-weighted assets ratio to remain largely steady, at around 1.0% over the next two years, as loan demand should remain robust in Beijing.
BOB’s reported common equity Tier 1 (CET1) ratio declined to 8.6% in 1Q25, from 9.0% at end-2024, due to above-peer loan growth. BOB’s funding and liquidity score of ’bb-’ is below the ’bbb’ category implied score due to the bank’s reliance on off-balance-sheet, non-deposit funding, which may strain its on-balance-sheet funding, as well as its reliance on corporate deposits. However, the loan/deposit ratio - at 89% at end-2024 - is expected to remain stable in the next two years.
The Long-Term IDR and GSR could face pressure if the central government’s propensity to provide timely extraordinary support to BOB diminishes. This may be reflected in an enhanced resolution framework and the authorities’ intention to permit losses on senior debt obligations as a means of resolving banks. However, Fitch does not expect either scenario to occur in the near term. The Short-Term IDR could be downgraded if the Long-Term IDR is downgraded.
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