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Fundamental View
AS OF 11 May 2023CDB’s credit standing is based on its role as a quasi-sovereign policy bank that provides financial support for implementation of the government’s socio-economic policy priorities both domestically and externally.
It is the largest issuer in the Chinese domestic bond market (accounting for near one-tenth of the whole China bond market) after the government itself.
CDB is wholly owned by the Chinese government and can lean on the central bank for liquidity and capital needs. In 2015, the government injected $32 bn in FX reserves into the bank to facilitate financing for Belt and Road Initiative (BRI) projects.
Business Description
AS OF 11 May 2023- CDB was established in 1994 to alleviate the problem of insufficient funds for China's economic growth and to take over the long-term financial agency function and policy loan function of CCB.
- From 1998-2013, under the leadership of Chen Yuan, CDB started its commercialization journey with its management attempting to demonstrate that a policy bank can be run along relatively commercial lines. But the commercialization raised the issue of higher bond financing costs for CDB. Unlike commercial banks, bond financing is the major source of funding for CDB. Since 2013, after a new CEO took over, CDB gradually returned to its original position of a policy bank.
- CDB is owned by the Chinese government via the MOF (37%), Huijin (35%), Buttonwood (27%) - an investment company held by SAFE - and the National Council for Social Security Funds (2%). CDB's main subsidiaries are CDB Capital Co (private equity), CDB Securities Co (underwriting & brokerage) and CDB Leasing, which is listed in Hong Kong.
Risk & Catalysts
AS OF 11 May 2023As its credit standing is strongly linked to the government, CDB is rated in line with the China sovereign (A1/A+/A+). Any downgrade of China’s sovereign rating would affect its own ratings.
Any reduction in the government’s willingness to support CDB would weaken its credit standing. Some uncertainty did arise as the bank moved towards commercialisation pre-2013, but CDB’s policy bank status has since been reaffirmed.
CDB’s policy role may involve it taking on exposure that lead to financial losses, in which case we would expect proactive state support to ensure that the bank remains financially sound.
Key Metric
AS OF 11 May 2023| Key Metrics | FY18 | FY19 | FY20 | FY21 | FY22 |
|---|---|---|---|---|---|
| Operating Income/Average Assets | 1.53% | 1.33% | 0.98% | 1.09% | 1.31% |
| Pre-Impairment Operating Profit / Average Assets | 1.43% | 1.22% | 0.88% | 0.99% | 1.22% |
| ROA | 0.7% | 0.7% | 0.7% | 0.5% | 0.5% |
| ROE | 8.7% | 8.7% | 8.2% | 5.2% | 5.3% |
| CET1 Ratio | 9.7% | 9.9% | 9.9% | 9.9% | 9.3% |
| Credit Costs | 0.86% | 0.45% | 0.05% | 0.59% | 0.85% |
| NPL Ratio | 0.92% | 0.95% | 0.79% | 0.84% | 0.78% |
| Total Equity/Total Assets | 7.90% | 8.30% | 8.51% | 8.82% | 8.66% |
CreditSight View Comment
AS OF 03 Jul 2023CDB is China’s largest policy bank. It is owned by the government and plays a key role in implementing the Chinese government’s economic plans both inside China and overseas. It is a quasi-sovereign entity that is rated in line with China’s sovereign rating. We therefore view its debt as attractive for additional spread pick-up over the $-denominated sovereign curve given that its ultimate risk is that of the Chinese government.
Recommendation Reviewed: July 03, 2023
Recommendation Changed: July 16, 2021
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