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Agricultural Bank of China
- Sector: Financial Services
- Sub Sector: Banks
- Country: China
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): M/P
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Fundamental View
AS OF 18 May 2023Our credit view on AGRBK (credit ratings: A1/A/A) is based on the strong likelihood of state support, given its large size, systemic importance and majority state ownership. This is enhanced by AGRBK’s extensive presence in rural areas.
AGRBK’s financial metrics are a tad weaker than those of peer-group leaders ICBCAS and CCB and in line with BCHINA; however they have been on an improving trend. The Big 4 have been managed more prudently in recent years than the smaller and more aggressive joint stock banks.
We view it as a strong credit taking into account its structural profitability, robust balance sheet metrics, large size, and systemic importance that assure it of state support if needed.
Business Description
AS OF 18 May 2023- AGRBK is the third-largest bank in China and is classified as a G-SIB with a capital surcharge of 1.0%.
- It was founded in 1951 as the Agricultural Cooperative Bank, merged with the central bank and spun out as AGRBK in 1979, charged with financing the rural and agricultural sectors. It was recapitalised in 1999 and again in 2007 by special MOF bonds. It also received $19 bn in equity capital from Huijin, funded by China's FX reserves.
- Due to its poorer asset quality and weaker profitability, AGRBK was the last of the Big 4 banks to be listed in 2010.
- The Chinese government is a majority shareholder of AGRBK via Central Huijin (40%), MOF (35%) and the Social Security Fund (7%).
- AGRBK has the second largest branch network in China after Postal Bank, with a particularly good presence in rural areas.
Risk & Catalysts
AS OF 18 May 2023China’s sovereign ratings (A1/A+/A+) are a key factor behind AGRBK’s credit standing.
AGRBK’s loan growth has been the strongest among the Big 5 banks since FY22, but the impact on net interest income growth was largely offset by a significant contraction in NIM. Rapid loan growth has led to a widened capital ratio differential between AGRBK and other Big 4 banks.
AGRBK is managed on commercial terms but the government may call on it to perform “national service” that overrides profitability considerations. However, we do not see it as a clear credit negative as these actions reflect close state links that underpin ABC’s credit standing.
Key Metrics
AS OF 18 May 2023| RMB bn | FY19 | FY20 | FY21 | FY22 | 1Q23 |
|---|---|---|---|---|---|
| PPP ROA | 1.71% | 1.65% | 1.64% | 1.43% | 1.58% |
| Reported ROA | 0.90% | 0.83% | 0.86% | 0.82% | 0.82% |
| Reported ROE | 12.4% | 11.4% | 11.6% | 11.3% | 12.6% |
| Total Equity/Total Assets | 7.8% | 8.1% | 8.3% | 7.9% | 7.4% |
| CET1 Ratio | 11.2% | 11.0% | 11.4% | 11.2% | 10.7% |
| NPL Ratio | 1.40% | 1.56% | 1.43% | 1.37% | 1.37% |
| Credit Costs | 1.10% | 1.16% | 1.03% | 0.79% | 1.11% |
| Loan-Deposit Ratio | 71% | 74% | 78% | 79% | 76% |
CreditSights View
AS OF 24 May 2023AGRBK is the 3rd-largest of the Chinese state-owned commercial banks and has a strong deposit franchise, especially in rural areas, which gives it access to a large pool of low-cost deposits. We view it as a strong credit taking into account its structural profitability, robust balance sheet metrics, large size and systemic importance that assure it of state support if needed. Its loan growth has been the strongest among the Big 5 banks since FY22, but the impact on net interest income growth was largely offset by a significant contraction in NIM. Rapid loan growth has led to a widened capital ratio differential between AGRBK and other Big 4 banks. Reserve cover is a strength and is well above its peers.
Recommendation Reviewed: May 24, 2023
Recommendation Changed: July 16, 2021
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