Haitong Bank S.A.

The stable outlook on Haitong Bank reflects our expectation that the bank will remain focused on strengthening its business model, even if we don't anticipate a sustainable profitability improvement. We also expect organic capital generation will be modest, but sufficient to preserve the bank's enhanced capital position, with a RAC ratio standing somewhat above 10% over the next 12-18 months. We could raise the rating 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 rating if we considered that Haitong Bank had become a more important subsidiary for its parent. We could lower our rating if the

...Haitong Bank's limited scale compared with larger domestic and foreign competitors, weaker efficiency, and profitability constrain its business competitiveness. Since its acquisition from Haitong Securities Co. Ltd. in 2015, the bank has simplified its structure and aimed for a profitable business model through several transformation projects. Although management's continued efforts to strengthen its domestic franchise and develop its cross-border activity with Chinese customers is positive, in our view, the bank's 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 14.4% at end-2021. Although we expect risk-weighted asset growth to push the RAC down, the ratio should remain solid at about 11% over the next 12-18 months. Haitong Bank's risk profile, however, is higher than that of peers. It now has a minimal stock of legacy nonperforming assets (NPAs),...

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