On October 21, Moody's confirmed the long-term and short-term foreign and local currency deposit ratings of Industrial & Commercial Bank of China (Macau) Ltd. ("ICBC Macau") at "A2/P-1". Moody's also affirmed the bank's Baseline Credit Assessment (BCA) at "ba1", with an adjusted BCA of "baa1". Additionally, the long-term and short-term Counterparty Risk (CR) assessments are rated "A1(cr)/P-1(cr)", and the long-term and short-term Counterparty Risk Ratings (CRR) at "A1/P-1", while the long-term and short-term Certificate of Deposit (CD) program ratings are "(P)A2/(P)P-1". The deposit ratings outlook for ICBC Macau is stable.
The rationale for ICBC Macau's ratings and the stable outlook reflects Moody's expectation that the bank's solid capital levels and strong financing franchises will provide some buffer against asset quality and profitability pressures. Moreover, support from its parent company, Industrial & Commercial Bank of China Ltd. (the "Bank", A1/negative, baa1), will help mitigate any potential downward pressures on the bank's financial condition over the next 12 to 18 months.
In terms of support from the Chinese government (A1), Moody's anticipates significant backing through its parent bank to maintain resilience. The agency expects ICBC Macau will face considerable asset quality challenges in the coming year and a half due to its exposures to the Macau Special Administrative Region (Aa3), Hong Kong Special Administrative Region (Aa3/stable), and the mainland Chinese real estate sector, which is expected to remain subdued during this period. According to the Monetary Authority of Macao, the bank's non-performing loan ratio rose to 11.1% by the end of June 2025, up from 9.1% at the end of 2024. Although most non-performing loans are secured—with collateral values covering 121% of the non-performing loans by the end of June 2025—there remains considerable uncertainty regarding realized recovery rates and the time required to resolve these non-performing loans.
Consequently, Moody's projects that ICBC Macau's credit costs will remain elevated as the bank continues to set aside provisions for its troubled loans, which will affect its profitability in the next 12 to 18 months. In the first half of 2025, the bank's net income as a percentage of average total assets improved to 0.22% from 0.1% a year prior due to a decrease in loan loss provisions. However, the bank's net interest margin will face downward pressure due to declining market interest rates limiting asset yields. Moody's does expect that growth in non-interest income, driven by brokerage and wealth management activities as well as foreign exchange earnings, will partially mitigate profitability pressures.
Despite anticipated slower loan growth over the next 12 months, Moody's believes that ICBC Macau's strong capital levels will withstand pressures from soft internal capital generation. As of the end of June 2025, the bank's Common Equity Tier 1 capital ratio stood at 13.7%. The agency expects the bank's good financial position will be supported by the robust franchise in the Macau SAR and ongoing development of its local retail deposit franchises. The bank holds a significant amount of liquid bank assets, including interbank assets, government bonds, and bonds issued by highly rated financial institutions and corporations.
ICBC Macau's ratings are based on a medium+ weighted macro profile, considering its lending exposures in Macau SAR (medium+), Hong Kong SAR (strong), and mainland China (medium+). Moody's factored in the very high level of affiliate support from ICBC, leading to an increase in ICBC Macau's adjusted BCA from "ba1" by three notches to "baa1", reflecting the bank's strategic importance to its parent and its close ties.
Moody's noted that operational resolution mechanisms have yet to be implemented in the Macau SAR. Thus, the agency employs a loss-given-failure (LGF) approach to rate the liabilities of banks in the region. The preliminary ratings for the bank's deposits (PR) are aligned with the adjusted BCA of "baa1". The PR assessments for the bank's CRR and CR evaluations stand at "a3" and "a3(cr)" respectively, one notch higher than the adjusted BCA of ICBC Macau.
Based on Moody's expectations for strong support from the Chinese government when needed, the bank's ratings have been upgraded by two notches. The anticipated government support will flow through its parent, ICBC, considering the latter's majority ownership, its status as China's largest commercial bank, and ICBC Macau's market position and significance to the banking system in Macau SAR.
Factors that could lead to a rating upgrade or downgrade include enhanced capacity of ICBC to support ICBC Macau, resulting in an upward adjustment of the parent's BCA, leading to an upgrade in ICBC Macau's adjusted BCA while the ability and willingness of the Chinese government to support ICBC Macau remains unchanged. If ICBC Macau successfully manages credit risks related to its real estate exposures and improves asset quality, maintaining the ratio of impaired loans to total loans below 3% while sustaining strong capital levels, funding, liquidity, and sufficient profitability, Moody's may upgrade ICBC Macau's BCA.
Conversely, if government support diminishes, weakening ICBC's capacity to support ICBC Macau, leading to a downgrade of the parent's BCA, this may cause a downgrade of ICBC Macau's adjusted BCA; if there’s a downgrade by more than one notch, Moody's may lower ICBC Macau's ratings. Should the bank's ratio of impaired loans to total loans remain above 10% for 12 months or longer, with tangible common equity/RWA declining to 13%, or if significant impairments lead to financial losses, Moody's may downgrade ICBC Macau's BCA.
ICBC Macau is headquartered in Macao SAR and had assets of MOP 361.5 billion as of June 30, 2025.