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Bank of China
- Sector: Financial Services
- Sub Sector: Banks
- Country: China
- Region: China
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Fundamental View
AS OF 02 Dec 2024- Bank of China (BCHINA; ratings: A1(neg)/A(stb)/A(neg)) is one of the Big 4 banks in China. Its subsidiary, BOC Hong Kong, is one of the major banks in HK.
- BCHINA’s systemic importance is enhanced by the leading role it plays in China’s international trade and investment and strong government links.
- BCHINA’s capital standing and reserve cover are a little weaker than ICBCAS and CCB, but the Big 4 banks have generally been managed more prudently compared to the non-Merchants joint stock banks.
Business Description
AS OF 02 Dec 2024- While its origins date back to China's last imperial dynasty, BCHINA was formally established in 1912 and has played the role of China's international bank for more than a century. Its operations outside mainland China include its 66.06%-owned subsidiary Bank of China (HK).
- After 1949, BCHINA became a state entity but was focused on FX and financing of foreign trade. It was set on a path of commercialisation in 1994 but only became a corporate entity in 2003 prior to its listings in HK and Shanghai in 2006. BCHINA is controlled by the government via a 64.13% stake held by Central Huijin.
- BCHINA was effectively insolvent in the late 1990s and the removal of NPLs to an AMC in 1999 did not fully deal with its legacy bad loans. In 2003, the bank received another $22.5 bn capital injection, paving the way for BOC's HK listing in 2006.
- BCHINA is a G-SIB with a capital surcharge of 1.5%. BOCHK is a D-SIB in HK, and is also the holding company for all of BCHINA's Southeast Asian operations excluding Singapore.
Risk & Catalysts
AS OF 02 Dec 2024- China’s sovereign ratings (A1(neg)/A+(stb)/A+(neg)) are a key factor behind BCHINA’s credit standing.
- BCHINA is managed on commercial terms, but fulfilling the government’s socioeconomic objectives may at times override profitability considerations and require the bank to perform “national service”. We would not regard such actions as credit-negative as they reflect close government links that also underpin the bank’s credit standing.
- BCHINA’s overseas footprint has to some extent offset the onshore NIM pressure and led to a stabler NIM compared to peers in FY23. However, its NIM has also been under pressure in FY24 due to higher non-CNY funding costs.
- As a G-SIB, BCHINA has a substantial TLAC shortfall to meet by 1 January 2028, whereas meeting the 1 January 2025 requirement appears manageable, on the back of its domestic TLAC issue plan and the upcoming government equity injection.
Key Metric
AS OF 02 Dec 2024| RMB bn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 1.55% | 1.48% | 1.39% | 1.31% | 1.23% |
| Credit Costs | 0.87% | 0.70% | 0.63% | 0.57% | 0.55% |
| Reported ROA | 0.87% | 0.89% | 0.85% | 0.80% | 0.75% |
| Reported ROE | 10.6% | 11.3% | 10.8% | 10.1% | 9.6% |
| Total Equity/Total Assets | 8.4% | 8.3% | 8.4% | 8.1% | 8.0% |
| CET1 Ratio | 11.3% | 11.3% | 11.8% | 11.6% | 12.2% |
| NPL Ratio | 1.46% | 1.33% | 1.32% | 1.27% | 1.26% |
| Loan-Deposit Ratio | 84% | 87% | 87% | 87% | 90% |
CreditSight View Comment
AS OF 01 Nov 2024BCHINA is one of the Big 4 banks (4th largest by assets) with a reasonable capital stack and sufficient liquidity. Its majority government ownership and systemic importance assures it of strong state support. Its NIM and profitability has trailed its more domestically-focused peers due to higher cost-income ratios of its overseas operations, but its credit costs are also the lowest among the Big 5. It had a larger QoQ NIM contraction than peers in 3Q24 as its overseas businesses are also faced with rate cuts. We have moved BCHINA from Underperform to Market perform on the back of fair $ FRN notes trading levels and the upcoming state capital injection.
Recommendation Reviewed: November 01, 2024
Recommendation Changed: September 26, 2024
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