OREANDA-NEWS. Fitch Ratings says the plans announced on 12 April 2015 by China's State Council to reform the three policy banks - China Development Bank (CDB), Agricultural Development Bank of China (ADBC), and Export-Import Bank of China (ExIm) - confirm that they will remain non-commercial entities.

In separate directives on each bank, the State Council reversed an earlier plan in 2007 to commercialise the policy banks, which was put on hold during the 2008 global financial crisis. This reinforces the banks' support-driven ratings, which were affirmed by Fitch at 'A+' with Stable Outlooks on 17 March 2015. The ratings are equivalent to China's sovereign ratings (A+/Stable/F1), as they are based on an extremely high probability of central government support in the event of stress, reflecting their important policy functions.

Areas of responsibility have also been confirmed and clarified. The reform plan specifically redefines CDB as a development financial institution from a policy bank, and calls upon CDB to take an active role in stabilising growth and in supporting China's rebalancing. This may imply more commercialised activity by CDB, while Fitch believes the bank will remain an agent of the state despite its legal status.

ExIm's mandate has been extended from its historical policy role of financing external trade to supporting domestic restructuring, as well as overseas expansion.

ADBC will retain its role in agricultural development, but has been asked to segregate its policy functions and commercial activities to sustain its primary role as an agricultural policy bank.

CDB and ExIm have moved increasingly over the last few years toward promoting the expansion of Chinese enterprises overseas to acquire resources and technology, and to alleviate the pressure on excess capacity sectors. Fitch expects the reform plans to pave the way for greater involvement by CDB and ExIm in the "One Belt, One Road" development strategy. This refers to the New Silk Road Economic Belt, which will link China with Europe through central and western Asia; and the 21st Century Maritime Silk Road, which will connect China with south-east Asia, Africa and Europe.

Fitch believes the banks are likely to take on a greater role in supporting the economy as domestic growth slows. This reinforces Fitch's expectations that these banks will effectively remain agents of state policy, and thus no Viability Ratings are likely to be assigned in the foreseeable future.

The State Council also calls for the strengthening of capitalisation and risk management, potentially paving the way for the introduction of minimum capitalisation standards for policy institutions. That said, being policy institutions, their risk appetite is expected to be higher than at commercial banks. Local media suggest a minimum capital ratio of 10.5% for these institutions, similar to the requirement for non-systematically important banks in China (compared with 11.5% for systemically important banks), but no confirmed details are available.