Moody's affirms deposit ratings for Big Four banks (2)

"Nonetheless, we do not expect a sharp fall in these banks' asset quality and profitability over the next 12-18 months,” Hu said.

Hu said that factors such as the still above-target growth of China, the measures the banks have taken to restructure and monitor loans to local government financial vehicles, and gradual regulatory changes from the authorities will help contain the risks.

The three banks — ICBC, CCB and BOC — have large loan portfolios and strong franchises, which allow them to both diversify risk across sectors and location, and to approach credit underwriting on a more selective basis when compared with their smaller peers, said Moody’s.

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, it said.

The upgrade of ABC's credit assessment reflects the improvement in the bank's performance since its IPO in 2010 in Shanghai and Hong Kong, and a shift in development strategy by the Chinese government towards western and central China will favor ABC more than the other banks, Hu said.

Moody’s said it will likely upgrade these banks’ baseline credit assessments 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, it added.