Fitch Ratings has affirmed The Export-Import Bank of China's (ExIm) Long-Term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook.

The Short-Term IDR has been affirmed at 'F1+'.

At the same time, Fitch is withdrawing ExIm's Support Rating and Support Rating Floor, as they are no longer relevant to the agency's coverage following the publication of our updated Bank Rating Criteria on 12 November 2021. In line with the updated criteria, we have assigned ExIm a Government Support Rating (GSR) of 'a+' .

Key Rating Drivers

Government Support-Driven IDR: The Long-Term IDR is driven by our assessment of a very high probability of the central government supporting ExIm in a timely manner in the event of stress, as expressed by the newly assigned GSR, which is equivalent to China's sovereign rating (A+/Stable/F1+). Our support expectations are driven by the government's full ownership of the bank and the long history of support, including capital injections.

The Short-Term IDR is at the higher of the two options for a Long-Term IDR of 'A+', reflecting our expectations that government support is more certain in the near term.

Policy Role in International Trade: ExIm has a specific policy role in supporting and promoting the strategic development of international trade, as well as providing financing for strategic overseas investments and resource purchases on behalf of the state, such as under China's Belt and Road Initiative. The entity's quasi-sovereign status is also reflected in a zero risk-weighting applied to the bonds issued by Exlm.

We do not assign a Viability Rating to ExIm as it effectively acts as an agent of the state. Its policy role also renders its Standalone Credit Profile, including the assessment of its financial ratios, less meaningful.

Policy Lending Prioritised: ExIm's policy role remains intact, even though in principle policy institutions, including Exlm, are asked to adhere to the same prudential requirements as commercial banks under the China Banking and Insurance Regulatory Commission's regulations. These came into effect in 2018 but have not led to material changes in ExIm's business model or policy focus. The regulations also state that policy institutions should give priority to policy-related businesses over commercial activities.

Continued Rapid Loan Growth: We expect ExIm to retain its key role in supporting state policy objectives, including policy-directed lending to parts of the economy or borrowers that may otherwise be perceived as unfavourable on a risk-adjusted basis for commercial lenders. We expect the bank to continue to grow its loans considering its policy role. Loans rose by 10% in 2021, driven by foreign trade finance loans, which were up 17%, and loans to fund overseas infrastructure and construction projects at Chinese companies (up by 8%).

Rating Sensitivities

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

The IDRs and GSR are likely to move in tandem with China's sovereign rating. Negative rating action could also arise should there be any reduction in the perceived ability or willingness of the government to support the bank. This includes a significant reduction in government ownership or influence, a material change in the bank's policy role, such as the increased commercialisation of its operations, or changes in the support mechanism that affects ExIm's relationship with the government.

The Short-Term IDR will be downgraded if the sovereign's Short-Term IDR is downgraded or if ExIm's Long-Term IDR is downgraded to 'A-' or lower.

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

An upgrade of China's sovereign rating could lead to positive rating action on the bank's GSR and support-driven Long-Term IDR. There is no rating upside to the Short-Term IDR, as it is already at the highest level.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

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

ExIm's IDRs are directly linked to China's sovereign ratings.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

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