Haitong Bank S.A.

Strategically important status within the Haitong group. Strengthened capital position owing to parental capital injections. Lack of scale in highly competitive and global market. Predominantly investment banking-related revenue, which is inherently more volatile. High single-name concentration. High reliance on wholesale funding. The stable outlook on Haitong Bank S.A. reflects our expectation that the bank will remain focused on gradually turning around its business model to achieve more sustainable profitability, and that it will continue to reduce the tail risks associated with legacy problematic loans over the next 12-18 months. We expect nonperforming loans (NPLs) will represent about 5% by end-2020, and that management will maintain improved underwriting standards while gradually expanding the loan book. We also expect organic capital generation

...Outlook: Stable The stable outlook on Haitong Bank S.A. reflects our expectation that the bank will remain focused on gradually turning around its business model to achieve more sustainable profitability, and that it will continue to reduce the tail risks associated with legacy problematic loans over the next 12-18 months. We expect nonperforming loans (NPLs) will represent about 5% by end-2020, and that management will maintain improved underwriting standards while gradually expanding the loan book. We also expect organic capital generation will be modest, but sufficient to preserve the bank's enhanced capital position, with our risk-adjusted capital (RAC) ratio standing at about 11%-12% over the 12-18 month outlook horizon. We could raise our ratings on Haitong Bank if it improved its operating profitability sustainably, generating recurring and stable revenue, while gradually aligning its efficiency with peers'. Although not our base case, we could also raise the ratings if we considered...

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