China’s fifth-largest bank downgraded to junk status

Beijing: China’s fifth-largest state-owned bank has had its credit rating downgraded to junk status by Moody’s, the latest sign of fragility in the country’s financial system. The decision to downgrade Bank of Communications was based on the lender’s lack of customer deposits and over-reliance on expensive and volatile alternative sources of funding, Moody’s said. It follows a Chinese government crackdown on banks using excessive leveraging, including unregulated “shadow banking”. “Moody’s review on BoCom was triggered by the bank’s increasing reliance on wholesale funds in recent years and declining profitability,” said the credit ratings agency in a statement on Thursday. The downgrade was driven by BoCom’s “weaker funding profile when compared to other state-owned Chinese banks”, particularly weaker deposit holdings, it said. BoCom’s baseline credit assessment was moved from baa3 to ba1 — crossing the “junk status” threshold. — AFP