Bank of Nanjing’s Baa3 deposit ratings affirmed by Moody’s, outlook now stable

Investing.com -- Moody’s Ratings has confirmed the Baa3 deposit ratings of Bank of Nanjing Co., Ltd., adjusting the bank’s outlook from positive to stable. The bank’s long-term and short-term local and foreign currency deposit ratings, as well as its Baseline Credit Assessment (BCA) and Adjusted BCA, remain unchanged.

The affirmation of the ratings reflects the bank’s robust asset quality and resilient profitability, even in China’s current low interest rate environment and economic transition. Moody’s expects the Chinese Government’s capacity and willingness to support the bank will remain consistent.

The outlook adjustment to stable from positive is due to expectations that the bank’s capital position will likely not improve in the next 12-18 months due to its still rapid loan and asset growth, despite a deceleration. The bank’s reliance on market funds is also not expected to decrease significantly due to slower deposit growth compared to loan growth.

Bank of Nanjing is expected to maintain good asset quality in the next 12-18 months, benefitting from its operations in economically advanced regions. The bank’s nonperforming loan (NPL) ratio has declined to 0.83% as of September 30, 2024, from a low level of 0.86%-0.91% over 2016-23. The bank’s NPL coverage ratio was 340.4% as of September 30, 2024, a level that was above the average of Moody’s rated banks.

The bank has significantly reduced its investments in non-standard products, which has further strengthened its asset quality. Its Common Equity Tier 1 (CET-1) ratio is expected to remain stable at around 9% over the next 12-18 months, strained by the still rapid loan and asset growth.

Bank of Nanjing’s profitability, measured by return on average assets (ROAA), is expected to slightly decline over the next 12-18 months primarily due to declining net interest margin (NIM). The bank has increased its investment assets measured by fair value, mainly in funds, financial institution bonds and treasury bonds.

The bank’s reliance on market funds has increased to 32.2% as of June 30, 2024, from 29.5% at the end of 2023, mainly due to moderate deposit growth during the period. However, the bank’s liquid resources, measured by liquid banking assets/tangible banking assets, has increased to around 48.0% as of June 30, 2024, which is sufficient to cover its market funds.

Bank of Nanjing’s deposit rating of Baa3 incorporates a two-notch uplift, reflecting Moody’s assessment of a high probability of support for the bank from the Government of China in times of need. The bank’s long-term Counterparty Risk Ratings (CRRs) and Counterparty Risk Assessments (CRAs) also benefit from a one-notch uplift from government support.

Bank of Nanjing’s ratings could be upgraded if the Chinese government’s capacity and willingness to support the bank strengthens or if the bank’s BCA is upgraded. Conversely, the bank’s ratings could be downgraded if the Chinese government’s capacity or willingness to support the bank weakens, or if the bank’s BCA is downgraded.

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