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Fundamental View
AS OF 02 Dec 2024- Our credit view on China Construction Bank (CCB; ratings: A1(neg)/A(stb)/A(neg)) is based on a strong likelihood of state support in the event of distress, given its large size, systemic importance and majority government ownership.
- Its systemic importance is enhanced by the key role it plays in financing China’s economic development and its close government links (and large government shareholding).
- The Big 4 banks are generally more prudently managed than the non-Merchants joint stock banks, but they are also subject to greater directed lending at low/no margins.
Business Description
AS OF 02 Dec 2024- CCB is one of the Big 4 Chinese banks and is classified as a G-SIB requiring an additional capital surcharge of 1.5%.
- CCB was originally formed in 1954 as a subsidiary of China's MOF to disburse funds intended for fixed asset investment. In the early 1980s, it started taking deposits and making loans outside of direct MOF control. In 1998, its NPLs were transferred to Cinda AMC in exchange for RMB 247 bn of Cinda bonds.
- The bank was re-capitalised again in 2003 with an injection of $23 bn by the PBOC. It was listed in 2005 but the Chinese government remains its controlling shareholder with a 57.14% stake held through state-owned Central Huijin.
- The bank owns CCB Asia and CCB International in Hong Kong, as well as operations in a number of countries.
Risk & Catalysts
AS OF 02 Dec 2024- China’s sovereign ratings (A1(neg)/A+(stb)/A+(neg)) underpin CCB’s credit standing; any deterioration in the sovereign ratings will negatively affect CCB’s ratings.
- CCB may be asked by the government to perform “national service” that overrides profitability considerations, e.g. supporting troubled property developers and the real economy by extending loans at lower rates. We would not regard such actions as credit-negative as they reflect close government links that also underpin the bank’s credit standing.
- As a G-SIB, CCB 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 planned equity injection by the government.
Key Metric
AS OF 02 Dec 2024| RMB bn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPOP ROA | 1.96% | 1.87% | 1.66% | 1.44% | 1.37% |
| Reported ROA | 1.02% | 1.04% | 1.00% | 0.91% | 0.87% |
| Reported ROE | 12.1% | 12.6% | 12.3% | 11.6% | 11.0% |
| Equity/Assets | 8.4% | 8.6% | 8.3% | 8.2% | 8.1% |
| CET1 Ratio | 13.6% | 13.6% | 13.7% | 13.1% | 14.1% |
| NPL Ratio | 1.56% | 1.42% | 1.38% | 1.37% | 1.35% |
| Provisions/Average Loans | 1.19% | 0.95% | 0.77% | 0.61% | 0.59% |
| Loan-Deposit Ratio | 81% | 84% | 85% | 86% | 90% |
CreditSight View Comment
AS OF 01 Nov 2024CCB is the 3rd-largest of the Chinese state-owned commercial banks and benefits from a strong franchise and close state links. Its capital ratios are the strongest in the sector. Its profitability and asset quality has recently been impacted by its social duties to support the real economy including stepping up lending towards the property sector, but we do not regard such actions as credit-negative as they reflect the close government links that also underpin the bank’s credit standing. We have moved CCB 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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