Standard & Poor's Ratings Services said over the weekend that its ratings and outlook on Bank of China Ltd. (BOC) were not affected by the bank's disclosure of its exposure to U.S. subprime mortgage-backed instruments.
Standard & Poor's does not expect potential losses to materially erode the bank's capital base, given the bank's adequate profitability and capitalization, according to the credit rating agency.
On Aug. 23, 2007, Bank of China reported exposure to securities backed by U.S. subprime mortgages of 9.6 billion U.S. dollars, about 18 percent of its capital or 1.25 percent of its total assets at the end of June 2007.
The bank has set aside 1.1 billion yuan to cover potential losses.
At the end of June 2007, all the instruments were rated "A" or above and more than 75 percent of the instruments were rated "AAA". The bank's net profit was 32.3 billion yuan and its annualized return on average assets was 1.16 percent in the first half of 2007.
Standard & Poor's said that it believes that while there might be a book loss for BOC stemming from market revaluations, the eventual credit loss would be minimal. (One U.S. dollar is equal to 7.57 yuan)