Fitch Ratings has assigned an expected rating of 'BBB+(EXP)' to China Everbright Bank Company Limited's (CEB, BBB+/Stable/bb-) proposed long-term senior unsecured notes.

The proposed notes will be issued by China Everbright Bank Co., Ltd., Hong Kong Branch (CEB Hong Kong Branch) under its USD5 billion medium-term note (MTN) programme.

The proposed notes will be listed on the Hong Kong Stock Exchange. The proceeds will be used to support CEB Hong Kong Branch's general funding needs. The issue amount and maturity structure will be finalised upon settlement. The final rating is contingent upon the receipt of final documents conforming to the information already received.

Key Rating Drivers

CEB Hong Kong Branch is part of the same legal entity as CEB. Therefore, the proposed notes to be issued under the MTN programme will represent CEB's direct, unconditional, unsecured and unsubordinated obligations and are rated in line with its Long-Term Issuer Default Rating (IDR), which is underpinned by Fitch's expectation of a high probability of support from the Chinese sovereign (A+/Negative) in the event of stress.

CEB Hong Kong Branch, established in 2013, is a fully licensed bank in Hong Kong. It is the first and largest overseas branch of CEB. CEB provides credit facilities to CEB Hong Kong Branch to support the branch's liquidity needs.

Key rating drivers and sensitivities for CEB can be found in its last full rating action commentary, dated 18 April 2024.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

The expected rating of the proposed notes would be downgraded if CEB's IDR is downgraded.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

The expected rating of the proposed notes would be upgraded if CEB's IDR is upgraded.

OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS

Fitch has assigned an expected senior unsecured long-term rating (xgs) of 'BB-(xgs)(EXP)' to the proposed notes.

The senior unsecured long-term rating (xgs) will be assigned at the level of CEB's Long-Term IDR (xgs), which is aligned with the bank's Viability Rating.

OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A downgrade of the bank's Long-Term IDR (xgs) would lead to a downgrade of the bank's expected senior unsecured long-term rating (xgs).

Factors that could, individually or collectively, lead to positive rating action/upgrade:

An upgrade of the bank's Long-Term IDR (xgs) would lead to an upgrade of the bank's expected senior unsecured long-term rating (xgs).

Date of Relevant Committee

05 September 2023

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

The expected rating of the proposed notes is directly linked with CEB's IDR.

ESG CONSIDERATIONS

CEB has an ESG Relevance Score of '4' for Financial Transparency, as there are still structural issues around financial transparency and disclosure. Those are not captured in headline performance metrics in China and affect our assessment of the operating environment as well as the financial profile. CEB, like other mid-tier banks, remains more exposed to this risk relative to the state banks because of its larger exposure to wealth management products and entrusted investments stemming from the use of off-balance-sheet transactions. This has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/topics/esg/products#esg-relevance-scores.

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