The successful listing of China Construction Bank (CCB) attracted wide attention and applause from the media and won the recognition of authoritative international credit rating agencies. Standard & Poor’s, Moodys’ and Fitch recently upgraded the ratings of CCB. The upgraded credit ratings of CCB were the highest among domestic commercial banks.  

These major international credit rating agencies upgraded the ratings of CCB recently by varied degrees. In October 2003, Moodys’ raised CCB’s long-term credit rating from Baa1 to A2 and its short-term credit rating from P2 to P1. In April 2004, Fitch improved the individual rating of CCB from E to D/E. In July, Standard & Poor’s changed CCB’s long-term foreign currency credit rating o from BB+ to BBB- and its short-term foreign currency credit rating from B to A-3.

Around the listing of CCB its international credit ratings were upgraded again. On September 28, 2005, Standard & Poor’s upgraded CCB’s long-term foreign currency credit rating from BBB- to BBB+, its short-term foreign currency credit rating from A-3 to A-2, and the fundamental strength from D+ to C. The outlook was affirmed at stable.

On November 21, Fitch rated CCB’s long-term foreign currency credit as A- and the outlook was affirmed at stable. CCB’s short-term foreign currency was affirmed at F2 and support rating at 1. At the same time the individual rating of CCB was improved from D/E to D.

On November 23, Moodys’ changed CCB’s financial strength from E+ to D-. The long-term credit rating was affirmed at A2 and the short-term credit rating at P-1. The rating outlook was affirmed at stable.

According to the analysis of people in the know, while upgrading the credit rating of CCB, these international rating agencies mainly considered the following factors: strong support from the government, the improvement of asset quality, the enhancement of capital strength and the effectiveness of management reform. The shareholding reform of CCB has seen initial results. The successful listing in Hong Kong greatly promoted the upgrading of CCB’s credit rating.  With the strategic goal of establishing a modern commercial bank, CCB will go all out to push forward the shareholding reform. CCB improved its abilities of risk management and internal control through the reorganization of management structure and the reinforcement of accountability system. CCB upgraded the management level and effectively improved the asset quality and working efficiency by deepening the reform in the HR system and the incentive and constraint mechanism and advancing reforms in the budget management with the economic capitals as the core. At the same time CCB formulated the management rules of information disclosure and established a spokesmen system. The content and quality of information disclosure were continuously improved and the transparency was increased. 

The unanimous upgrading of CCB’s ratings is not only a reflection of the general recognition of the international rating agencies on the effect of the restructuring, especially the improved financial status, the enhanced asset quality and the consolidated capital strength but also a manifestation of the improvement made by CCB in risk management, audit, information technology, corporate governance and transparency. Moreover, these rating agencies believed that the support to CCB from the government would never change. CCB will face stricter supervision from the market after listing, conducive to the improvement of corporate governance structure. The introduction of strategic investors will improve the operation and management of CCB. Moodys’ anticipated, “CCB will maintain its leading position by achieving robust growth in China’s fast-growing banking market. After IPO, CCB has become a listed company. So it is anticipated that the operation of CCB will be more transparent and have to receive the supervision from the public, as a result of which CCB’s corporate governance and risk control will gradually improve. Moreover, The introduction of Bank of America Corp as the strategic investor will help improve its management level.”

On the other hand, the upgrading of CCB’s ratings was influenced by the rating cap on government credit. Generally speaking, the rating of banks will not exceed the cap of a country’s sovereignty rating. At present China’s long-term foreign currency rating is rate A- by Standard & Poor’s, A2 by Moodys’ and A by Fitch. Influenced by such factors as ideology, the rating cap on China’s sovereignty by these rating agencies is comparatively low. In the past some rating agencies even regarded China’s banking industry as the most risky banking system in the world, which by a certain degree, prevented China’s banking industry from further upgrading. Therefore, the ratings of China’s commercial banks were not truly reflected yet.