S&P Rates Chinese Banks Higher Than U.S. Big Banks

By: EW News Desk Team   Date: 30 November 2011

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EW News Desk Team

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30 November 2011

Following a criteria revision, credit ratings firm Standard and Poor’s has upgraded the ratings of several Chinese banks while a few top U.S. banks were downgraded. The new criteria have affected 37 banks so far, though more banks will be facing rating changes in the coming months.

Bank of China and the China Construction Bank saw their ratings move up a notch to A while the Industrial & Commercial Bank of China, the world’s largest bank by market capitalisation, was maintained at A.

In a statement by S&P, the new ratings reflect the very high likelihood of China’s government providing help for the lenders in the event of financial distress.

Most of the downgrades affected big banks in Europe and the United States, with 15 banks downgraded. According to S&P, the ratings changes come after it reviewed the changes in the industry and the chances of a government or central bank led bailout should another financial crisis occur.  

Four big biggest U.S. banks by assets were among the companies whose ratings were cut immediately.

Goldman Sachs, Bank of America, Citigroup, Morgan Stanley, and BNY Mellon were among the institutions the bond rating agency downgraded Tuesday.

Top U.K. downgrades included Barclays, HSBC Holdings, Lloyds Banking Group and The Royal Bank of Scotland.

Ratings for several big European banks, including Credit Suisse, Deutsche Bank, ING and Societe Generale remained unchanged.

Earlier this month, S&P announced that they would gradually roll out the updated rankings for more than 750 banks worldwide, starting with the world’s banking titans. The remaining announcements are set to be released in the coming weeks.

Related: World's largest banks face credit rating reviews in 3 weeks

Related: German court gives investors permission to sue S&P over Lehman ratings

Credit downgrades can be a source of worry for banks as it affects their ability to raise funds. Furthermore, with the debt crisis in Europe interbank lending has been drying up.

Still, analysts believe that the downgrades could have been more severe for U.S. banks but the one-notch downgrade would have only a limited impact on their funding costs.

According to Craig Parmelee, S&P managing director for financial services rating, the new rating methods put more emphasis on the health of the banking industry in the countries where banks operate and expects the changes to illustrate the strength of banks in emerging economies compared with Western Europe and the United States. 

Related: Top US banks face stress test over contagion fears 

Related Story: If the banks didn't cause the financial crisis, what did?


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