DBRS Changes Trend of Bank of China (Canada) to Negative and Confirms Rating of A (low) Following Sov. Action

DBRS Limited (DBRS) changed the trend on all long-term ratings of Bank of China (Canada) (BOCC or the Bank) to Negative from Stable. At the same time, DBRS confirmed all ratings of the Bank, including its Long-Term Issuer Rating of A (low) and its Short-Term Issuer Rating of R-1 (low). The trends on all short-term ratings remain Stable. These rating actions follow the change in trend on the A (high) sovereign rating of the People’s Republic of China (PRC) to Negative from Stable on March 21, 2019.

KEY RATING CONSIDERATIONS
BOCC’s Long-Term Issuer Rating is based on a Support Assessment (SA) of SA1, reflecting the expectation of timely support from its parent, Bank of China (BOC or the Parent). The Parent is a Global Systemically Important Bank (G-SIB), which is 68% owned by the PRC. The two-notch rating differential between the PRC and BOCC includes one notch for the PRC’s lack of full ownership of BOC as well as one notch for BOCC’s status as a fully owned foreign subsidiary in a low cross border-risk country. Given the SA1 designation, DBRS would likely move BOCC’s ratings in tandem with the PRC’s ratings.

The ratings of BOCC, a wholly owned subsidiary of BOC, reflect its important role as an extension of its Parent’s global platform, providing banking services to Chinese corporate and retail clients outside the PRC. BOCC’s strategic importance to its Parent is also demonstrated through the Bank’s close links with the Parent’s management and reporting systems. Given the international scope of BOC and its global systemic importance, as well as being majority owned by the PRC, DBRS expects the Parent to receive timely, systemic support from the PRC.

RATING DRIVERS
Given that the ratings are based on an SA that is driven by the relationship to BOC, a G-SIB that is 68% owned by the PRC, they could come under pressure should there be a reduction in the ownership stake by the Chinese government in BOC, a reduction in BOCC’s strategic importance to the Parent or a downgrade of the PRC’s sovereign rating. Conversely, ratings could be positively affected by an upgrade of the PRC’s sovereign rating.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (July 2018), which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com.

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