Fundamental ViewAS OF 18 May 2023
Our credit view on China Construction Bank (CCB; ratings: A1/A/A) is based on the strong likelihood of state support in 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 their more aggressive smaller competitors, but they are also expected to support the real economy in a downturn.
Business DescriptionAS OF 18 May 2023
- CCB is the second-largest of the Big 4 Chinese banks and is classified as a G-SIB requiring an additional capital surcharge of 1.0%.
- 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% 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 & CatalystsAS OF 18 May 2023
China’s sovereign ratings (A1/A+/A+) underpin CCB’s credit standing; any deterioration in the sovereign ratings could negatively affect CCB’s ratings.
CCB’s loan growth has been rapid to support the post-COVID economy, but this has also led to increasing pressure on its capital ratios.
CCB may be asked by the government to perform “national service” that overrides profitability considerations, e.g. supporting troubled property developers and extending loans at lower rates during the pandemic. We would not regard such actions as credit-negative as they reflect close government links that also underpin the bank’s credit standing.
Key MetricsAS OF 18 May 2023
CreditSights ViewAS OF 24 May 2023
CCB is the 2nd-largest of the Chinese state-owned commercial banks and benefits from a strong franchise and close state links. It has the second strongest capital ratios among Chinese banks, just behind ICBC. Its profitability has recently been impacted by its social duties to support the real economy including stepping up lending at lower rates, 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. Its loan growth has been rapid to support the post-COVID economy, but this has also led to increasing pressure on its capital ratios. Profit growth was weak in 1Q23 and will continue to be challenging in FY23. 1Q23 fee income growth though was well above its peers.
Recommendation Reviewed: May 24, 2023
Recommendation Changed: July 16, 2021