o Industrial and Commercial Bank of China (ICBC)

o China Construction Bank (CCB)

o Bank of China (BOC)

o Agricultural Bank of China (ABC)

Moody's has also affirmed:

o ICBC's D+ bank financial strength rating (BFSR), which translates into a ba1 baseline credit assessment (BCA) on Moody's long-term scale

o CCB's D+ BFSR/ba1 BCA

o BOC's D BFSR/ba2 BCA and A1 senior unsecured debt rating

At the same time, Moody's has upgraded ABC's BFSR/BCA to D/ba2 from D-/ba3.

The outlook for all ratings is stable.

RATINGS RATIONALE

Affirmation of ratings of ICBC, CCB and BOC with a stable outlook

"The affirmation of the ratings of ICBC, CCB and BOC with a stable outlook follows a review of the latest economic and regulatory developments in China. It reflects our assessment that these banks' performances, especially in terms of asset quality and profitability, will prove resilient in the current challenging operating environment," says Bin Hu, a Moody's Vice President and Senior Analyst.

"At the same time, the three have recorded increases in delinquent and special-mention loans since late 2011 as a result of China's economic slowdown," says Hu.

"They also face margin pressure as parts of their loan books have yet to be re-priced at lower rates, following moves by the People's Bank of China, the central bank, in June and July to cut interest rates and widen the floating ranges for the rates against which Chinese banks benchmark their lending and deposit rates," says Hu.

"Nonetheless, we do not expect a sharp fall in these banks' asset quality and profitability over the next 12-18 months as China's overall economy, although slowing, is still growing at above the government's target; the banks have taken measures to restructure and monitor loans to local government financial vehicles; and the authorities are implementing only gradually regulatory changes that could negatively affect bank earnings," says Hu.

Some sectors -- such as retail and wholesale trade, shipping, steel, solar energy, manufacturing and those related to exports -- have also been negatively affected by the economic slowdown, while the real estate sector has been impacted by government measures to control prices.

But these three banks -- ICBC, CCB and BOC -- have large loan portfolios and strong franchises, which allow them to both diversify risk across sectors and geographies, and to approach credit underwriting on a more selective basis when compared to their smaller peers.

As noted, despite the slowdown and weak external demand, the economy is still expanding at a significant pace, growing 7.7% on an annualized basis in Jan-Sep 2012 and in the absence of significant government fiscal stimulus. The decision by Chinese policymakers not to embark on another bout of government-promoted lending -- similar to what was seen in 2009 -- is also likely to help the banks avoid the excessive risk-taking often related to rapid credit growth.

On loans to local government financial vehicles, Moody's recognizes that moves by the banks to extend tenors will not eliminate risk, but the resulting projected cash flows would better match loan repayment schedules and thus reduce potential loan delinquencies.

Another challenge for these banks is ongoing initiatives by the regulators to deregulate the financial markets, including, but not limited to, the further widening of bands for lending and deposit rates and allowing more companies to raise funds from the capital market.

This trend poses a long-term challenge to Chinese banks, but would unlikely cause a significant reduction in their profits in the next one to two years. Moody's research suggests that the banks' net interest margin may decline by a modest 4-6 basis points in 2012 and, on our base case assumptions, by 10-13 basis points in 2013.

While such results would represent a negative trend, the impact on overall profitability will be modest during the next 12-18 months and consistent with the banks' ratings and stable outlook. The liberalization process for interest rates is also expected to be gradual. Moreover, the major banks continue to command a degree of pricing power on loans, particularly with regard to small- and medium-sized borrowers due to their strong demand for credit.

Other rating considerations include their low level of reliance on wholesale funds and their healthy capital adequacy levels. In addition, Moody's assesses systemic support for these banks in times of stress to be very high due to their high levels of government ownership and their systemic importance to China's economy.

ICBC's Jan-Sep 2012 profit was up 13% year-on-year. At end-September 2012, its non-performing loans (NPL) ratio was 0.87% (seven basis points lower than end-2011), reserve coverage ratio 288% and Tier 1 capital ratio 10.5%.

CCB's Jan-Sep 2012 profit was up 14% year-on-year. At end-September 2012, its NPL ratio was 1.00% (nine basis points lower than end-2011), reserve coverage ratio 263% and Tier 1 capital ratio 11.4%.

BOC's Jan-Sep 2012 profit was up 10% year-on-year. At end-September 2012, its NPL ratio was 0.93% (seven basis points lower than end-2011), reserve coverage ratio 237% and Tier 1 capital ratio 10.4%.

Affirmation of ABC's deposit rating and upgrade of its BCA with a stable outlook

"The affirmation of ABC's deposit ratings considers the same factors mentioned above for ICBC, CCB and BOC," says Hu. "In addition, the upgrade of ABC's BCA reflects the improvement in the bank's performance since its IPO in 2010 in Shanghai and Hong Kong."

Its Tier 1 capital ratio, though still lower than the other three big banks, strengthened significantly to 9.8% at end-September 2012 from 7.7% at end-2009.

Profitability has also been healthy, and its return on average assets for Jan-Sep 2012 improved to 1.29% from 0.82% in 2009.

Meanwhile, its NPLs have declined both in absolute amounts and as a percentage of its loan book since 2009. At end-September 2012, its NPL ratio was at 1.34%, down from 2.91% at end-2009. ABC also reported a high reserve coverage ratio of 311%.

Its status as a listed public company -- and the resultant added public scrutiny -- have led to more transparency and disclosure, and greater accountability.

When compared with its Chinese peers, ABC also exhibits better profitability and stronger liquidity, mainly due to its traditional focus on rural business. Urbanization continues to provide lending opportunities at the county level. China is divided into provinces and autonomous regions which are further divided into cities and then counties.

Moreover, a shift in development strategy by the Chinese government towards western and central China will favor ABC more than the other banks.

Other considerations for its still modest BCA include the challenge of balancing the returns in rural lending with the attendant risks. Profitability will be negatively impacted not only by interest rate deregulation, but also by the higher credit costs related to its lending activities, if risk is not properly managed.

All the big four banks' BCAs are conservatively positioned relative to their financial metrics due to our concerns over their unseasoned risk and governance systems and credit portfolios, particularly in view of the rapid loan growth evident in 2009. We would likely upgrade their BCAs next year if there are growing signs of economic stabilization and if these banks can keep their financial performances close to current levels. However, upgrades to their current A1 deposit and debt ratings are remote, given the high amount of systemic uplift already present in these ratings.

On the other hand, the big four banks' BCAs could decline if there is evidence that (i) the recent vintage of loan originations will strain their financial strength more than Moody's has assumed, (ii) their financial leverage rises significantly from current levels due to aggressive business growth, or (iii) there is a reversal in the trend towards improvements in risk management, controls and corporate governance.

Since we have assumed substantial systemic support in the big four banks' deposit ratings, any indication that government support is anything other than extremely high would be negative for their deposit and debt ratings, although this scenario is currently viewed as unlikely in the medium term.

The principal methodology used in these ratings was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The big four Chinese banks are all headquartered in Beijing. As of 30 September, 2012, ICBC's assets totaled RMB17.4 trillion, CCB's assets RMB13.3 trillion, ABC's assets RM13.1 trillion and BOC's assets RMB12.7 trillion. The four banks account for about 45% of system assets.

The local Market analyst for ICBC and BOC is Yi Zhang, +86 (10) 6319-6562.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

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Bin Hu Vice President - Senior Analyst Financial Institutions Group Moody'sInvestors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Stephen Long MD - Financial Institutions Financial Institutions Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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