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Fundamental View
AS OF 09 Nov 2022Our credit view on ICBCAS (ratings: A1/A/A) 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, playing a key role in financing the country’s economic development.
ICBCAS has maintained relatively stronger financial metrics and sound credit fundamentals in recent years as the Big 4 have been generally managed more prudently than their more aggressive smaller competitors.
Business Description
AS OF 09 Nov 2022- 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 the majority of ICBCAS's shares through Central Huijin and the Ministry of Finance, which own stakes of 35% and 31% respectively.
- ICBCAS has ~16,200 domestic branches and outlets, as well as 400+ overseas branches in 48 countries and regions.
- With total assets in excess of RMB 38 tn, ICBCAS is the world's largest bank by assets and is classified as a G-SIB with a capital surcharge of 1.5%.
Risk & Catalysts
AS OF 09 Nov 2022China’s sovereign ratings (A1/A+/A+) underpin ICBCAS’s credit standing. Any deterioration in the sovereign ratings could negatively affect ICBCAS’s ratings.
Asset quality risk is rising as China’s economic momentum flags and the property sector remains under stress. 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, e.g. supporting troubled property developers and stepping up lending at lower rates during COVID-19. We would not regard such actions as credit negative as they reflect the close government links that also underpin the bank’s credit standing.
Key Metrics
AS OF 09 Nov 2022| RMB bn | 9M22 | 9M21 | FY21 | FY20 | FY19 |
|---|---|---|---|---|---|
| PPP ROA | 1.75% | 1.92% | 1.82% | 1.87% | 1.97% |
| Reported ROA | 0.95% | 0.98% | 1.02% | 1.00% | 1.08% |
| Reported ROE | 11.3% | 11.8% | 12.2% | 12.0% | 13.1% |
| Total Equity/Total Assets | 8.6% | 8.9% | 9.3% | 8.7% | 8.9% |
| CET1 Ratio | 13.7% | 13.1% | 13.3% | 13.2% | 13.2% |
| NPL Ratio | 1.40% | 1.52% | 1.42% | 1.58% | 1.43% |
| Provisions/Average Loans | 1.04% | 1.22% | 1.03% | 1.15% | 1.11% |
| Loan Deposit Ratio | 76% | 76% | 78% | 74% | 73% |
CreditSights View
AS OF 09 Nov 2022We maintain our Market perform recommendation on ICBCAS. ICBCAS 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 and its financial performance in recent years has been respectable – we view ICBC as a very strong and stable credit. 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. We view ICBCAS as a core portfolio holding, particularly if market conditions are volatile, although its spreads and yields are relatively tight.
Recommendation Reviewed: January 11, 2023
Recommendation Changed: July 16, 2021
Who We Recommend
Siam Commercial Bank
Bangkok Bank
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