China Bohai Bank Co. Ltd.

The negative outlook on China Bohai Bank reflects our view that there is a one-in-three chance that the bank's risk position could be significantly worse than the industry average over the next one to two years. This considers the bank's high SME and real estate exposures as well as geographical concentration in north and northeast China where some cities are economically less prosperous. We believe China Bohai Bank will maintain its moderate systemic importance to the Chinese banking system over the period. We could lower the rating on CBHB if the bank's asset quality is significantly worse than the industry average for an extended period. In addition to nonperforming and special mention loan ratios, we will look at forborne, stage

...Small business vulnerabilities and the property sector downturn continue to weigh on the asset quality of China Bohai Bank Co. Ltd. (CBHB) But slower loan growth reduces the bank's capital consumption at the same time, widening the buffer against the threat of asset quality erosion. S&P Global Ratings' negative outlook on the bank reflects our view of a one-in-three chance that CBHB's risk position could be significantly worse than the industry average for an extended period due to its SME and real estate exposures as well as geographical concentration in north and northeast China. CBHB's profitability will come under pressure because of its geographical concentration in north and northeast China. The northeast region, in particular, is facing economic strains as a result of overcapacity in traditional heavy industries. CBHB's revenue and profit before tax from these regions fell 21% and 35% respectively, dragging its return on assets (ROA) down 18 basis points year-on-year to 0.54% in...

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