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Fundamental View
AS OF 24 May 2024Our credit view on ICBCAS (ratings: A1(neg)/A(stb)/A(neg)) is based on the 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 its status as China’s largest lender; it plays a key role in financing the country’s economic development.
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 Description
AS OF 24 May 2024- With total assets in excess of RMB 44.5 tn, ICBCAS is the world's largest bank by assets and is classified as a G-SIB with a capital surcharge of 1.5%.
- ICBCAS was originally set up in 1984 to provide loans to China's large state-owned industrial corporations.
- ICBCAS was recapitalised in 2005 with an injection of $15 bn, following which it was listed in Hong Kong and Shanghai in 2006.
- The government owns a majority of ICBCAS's shares through Central Huijin and the Ministry of Finance, which own stakes of 34.79% and 31.14% respectively.
- In addition to a strong onshore presence, ICBC has an extensive international network as well.
Risk & Catalysts
AS OF 24 May 2024China’s sovereign ratings (A1(neg)/A+(stb)/A+(neg)) underpin ICBCAS’s credit standing; any deterioration will negatively affect ICBCAS’s ratings.
Asset quality risk remains as China’s economic recovery is slow and the property sector has yet to see a meaningful recovery. Transparency is limited and credit risks are hard to assess in China as these often depend on the government’s willingness to socialise losses.
ICBCAS is managed on commercial terms, but the government may call on it to perform “national service” that overrides profitability considerations. 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.
As a G-SIB, ICBCAS has a substantial TLAC shortfall to meet by 1 January 2028, whereas meeting the 1 January 2025 requirement appears manageable. It announced in February a proposal to issue up to RMB 60 bn of TLAC bonds in the onshore market.
Key Metrics
AS OF 24 May 2024RMB bn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 1.87% | 1.82% | 1.61% | 1.35% | 1.40% |
Reported ROA | 1.00% | 1.02% | 0.97% | 0.87% | 0.76% |
Reported ROE | 12.0% | 12.2% | 11.5% | 10.7% | 10.1% |
Total Equity/Total Assets | 8.7% | 9.3% | 8.8% | 8.4% | 8.1% |
CET1 Ratio | 13.2% | 13.3% | 14.0% | 13.7% | 13.8% |
NPL Ratio | 1.58% | 1.42% | 1.38% | 1.36% | 1.36% |
Provisions/Average Loans | 1.15% | 1.03% | 0.83% | 0.61% | 0.90% |
Loan Deposit Ratio | 74% | 78% | 78% | 78% | 78% |
CreditSights View
AS OF 30 Apr 2024ICBCAS is the largest bank by assets in the world and has a very strong franchise in China. Its majority government ownership adds to its systemically important status. It has peer-leading capital ratios. 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. Profits declined YoY in 1Q24 due to lower core topline revenues on NIM compression and lower fee income. Due to China’s weaker macro outlook, challenging prospects for the sector, and tighter spreads compared to elsewhere in Asia, we have an Underperform recommendation on the bank.
Recommendation Reviewed: April 30, 2024
Recommendation Changed: August 22, 2023
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