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Investing.com -- Fitch Ratings has updated the outlook for Bank of China (Australia) Limited (BOCAL) from Negative to Stable and confirmed its Long-Term Issuer Default Rating (IDR) at 'A-'. This change mirrors the outlook of its parent company, Bank of China Limited (BOC), which also has an 'A-' rating. The Short-Term IDR and Shareholder Support Rating (SSR) of BOCAL have also been confirmed at 'F1' and 'a-' respectively.
The revision follows a similar action taken on the BOC, reflecting the high likelihood of support from the parent company. The BOC's Long-Term IDR serves as the anchor rating, indicating that any required support would likely flow from the Chinese government, through the parent company, to BOCAL.
Although BOCAL is strategically important to BOC due to strong synergies, it is not considered an integral part of the group due to its small size. As of the end of 2023, BOCAL's total assets accounted for about 0.1% of the parent's assets. This is reflected in BOCAL's SSR and Long-Term IDR being one level below the parent's rating.
Fitch has not assigned a Viability Rating (VR) to BOCAL due to its high level of integration with its parent company, including management, strategy, treasury, and risk functions. BOCAL also relies heavily on the parent's brand to attract business, making a standalone credit assessment for the subsidiary not meaningful.
The ratings of BOCAL are sensitive to changes in BOC's Long-Term IDR. Any downgrade of the parent's Long-Term IDR would most likely be reflected in BOCAL's Long-Term IDR. Conversely, BOCAL's Long-Term IDR could be upgraded if the parent's Long-Term IDR is upgraded, or if Fitch believes the parent has an increased propensity to support the subsidiary. This could include BOCAL becoming an integral part of the wider group.
The 'F1' Short-Term IDR is driven by support and reflects Fitch's view that BOC's propensity to support would be more certain in the short term. The ratings on BOCAL's guaranteed AUD1.5 billion transferable certificate of deposit (TCD) programme and debt issued under the programme reflect a guarantee from the parent, BOC, included in BOCAL's programme documents.
BOCAL's IDRs are driven by BOC's IDRs. BOCAL's Long-Term IDR is one notch below BOC's Long-Term IDR under shareholder support notching considerations. The ratings assigned to BOCAL's senior debt instruments are in line with the IDRs of its parent, BOC, reflecting the guarantee the instruments and programme benefit from.
BOCAL's Short-Term IDR and TCD programme ratings could be downgraded if there is a multi-notch downgrade of BOCAL's Long-Term IDR, or if the guarantee is removed from the programme. The ratings could be upgraded if the parent's Long-Term IDR is upgraded, or if BOCAL's Long-Term IDR is upgraded and the parent's Short-Term IDR remains at 'F1+'.
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