(Yicai) Oct. 29 -- China’s six largest commercial banks have had their long-term foreign-currency issuer default ratings affirmed by global credit ratings agency Fitch Ratings, which also increased their viability ratings.

Fitch affirmed the long-term IDR of Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, Industrial and Commercial Bank of China, and Postal Savings Bank of China at ‘A,’ their short-term IDR at ‘F1+,’ and their government support rating at ‘A,’ with the outlook on the long-term IDR remaining ‘Stable,’ it announced on Oct. 27.

Their long-term IDRs are based on Fitch’s assessment of a ‘Very High’ likelihood of government support, as the GSR is equalized with China’s sovereign rating of ‘A’/Stable. The assessment was buoyed by the state’s majority ownership in the banks, their long history of receiving government support and systemic importance, along with their enhanced policy roles, among other reasons.

Fitch also upgraded the VR of ABC, BOC, CCB, and ICBC to ‘bbb+’ from ‘bbb,’ that of BOCOM to ‘bb+’ from ‘bbb-,’ and that of PSBC to ‘bbb’ from ‘bbb-.’

VR gauges the credit quality of financial institutions based on viability prospects and expectations of failure risk. Failure scenarios include default, the need for extraordinary support, and mandatory write-downs of subordinated debt.

The VR upgrades for ABC, BOC, CCB, ICBC, and PSBC reflect their strong business profiles, which supports their through-the-cycle credit resilience, and continued improvement in Chinese banks’ operating environment, Finch noted, adding that BOCOM’s upgrade reflects an ongoing improvement in its intrinsic credit profile, driven by an enhanced business profile, a more moderate growth appetite, and a continued reduction in shadow banking activities amid regulatory enhancements.

Fitch revised China’s operating environment score to ‘bbb’ from ‘bbb-’ with a stable outlook because of structural improvements in the Chinese banking system over the past five years, such as lower shadow-banking risks, greater transparency, stronger credit discipline, and further improvements to the regulatory framework, the firm explained.

“We believe China's solid external finances and large and diversified economy, incorporated in its sovereign rating, will provide greater financial and economic stability to the banking sector,” the New York and London-based company said.

“Despite economic volatility, China’s state-owned banks have demonstrated stable profitability and asset quality across economic cycles, backed by their dominant market positions, robust funding profiles, prudent asset-liability management, and strong links with the government,” said Xu Wenchao, director of Asia-Pacific financial institutions ratings at Fitch.

The combination of these strengths and a steadily improving operating environment has boosted the banks’ ability to weather economic cycles and underpins the VR upgrades, Xu added.

Editors: Tang Shihua, Futura Costaglione