Haitong Bank S.A.

Our stable outlook on Haitong Bank reflects our expectation that the bank will remain focused on strengthening its business model to gradually achieve more sustainable profitability. We also expect organic capital generation will be modest, but sufficient to preserve the bank's enhanced capital position, with our RAC ratio standing at about 11%-12% over the next 12–18 months. 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 Haitong Bank to be a more important subsidiary for its Chinese parent. We could lower our ratings if the bank were to

...Haitong Bank's limited scale compared with larger domestic and foreign competitors, weaker efficiency, and profitability constrain its business competitiveness. The bank has undergone several transformation projects since its acquisition from Haitong Securities Co. Ltd. in 2015 to simplify its structure and to achieve a profitable business model. Although we view positively management's continued efforts to strengthen the domestic franchise and develop its cross-border activity with Chinese customers, its operating profitability and franchise remain weak. Haitong bank has strong capitalization but also an inherently riskier business model. The bank had a risk-adjusted capital (RAC) ratio of 14.5% at end-2020, and we expect it to stay above 10% for the next two years. While we view positively its reduction of legacy nonperforming assets (NPAs) over recent years, Haitong Bank continues to show a higher risk profile on average compared with peers. Its high single-name concentration, persistent...

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