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Region: China
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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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Search topics about wealth insights and investments.Bank of China
- Sector: Financial Services
- Sub Sector: Banks
- Country: China
- Region: China
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Fundamental View
AS OF 02 Dec 2024- Bank of China (BCHINA; ratings: A1(neg)/A(stb)/A(neg)) is one of the Big 4 banks in China. Its subsidiary, BOC Hong Kong, is one of the major banks in HK.
- BCHINA’s systemic importance is enhanced by the leading role it plays in China’s international trade and investment and strong government links.
- BCHINA’s capital standing and reserve cover are a little weaker than ICBCAS and CCB, but the Big 4 banks have generally been managed more prudently compared to the non-Merchants joint stock banks.
Business Description
AS OF 02 Dec 2024- While its origins date back to China's last imperial dynasty, BCHINA was formally established in 1912 and has played the role of China's international bank for more than a century. Its operations outside mainland China include its 66.06%-owned subsidiary Bank of China (HK).
- After 1949, BCHINA became a state entity but was focused on FX and financing of foreign trade. It was set on a path of commercialisation in 1994 but only became a corporate entity in 2003 prior to its listings in HK and Shanghai in 2006. BCHINA is controlled by the government via a 64.13% stake held by Central Huijin.
- BCHINA was effectively insolvent in the late 1990s and the removal of NPLs to an AMC in 1999 did not fully deal with its legacy bad loans. In 2003, the bank received another $22.5 bn capital injection, paving the way for BOC's HK listing in 2006.
- BCHINA is a G-SIB with a capital surcharge of 1.5%. BOCHK is a D-SIB in HK, and is also the holding company for all of BCHINA's Southeast Asian operations excluding Singapore.
Risk & Catalysts
AS OF 02 Dec 2024- China’s sovereign ratings (A1(neg)/A+(stb)/A+(neg)) are a key factor behind BCHINA’s credit standing.
- BCHINA is managed on commercial terms, but fulfilling the government’s socioeconomic objectives may at times override profitability considerations and require the bank to perform “national service”. We would not regard such actions as credit-negative as they reflect close government links that also underpin the bank’s credit standing.
- BCHINA’s overseas footprint has to some extent offset the onshore NIM pressure and led to a stabler NIM compared to peers in FY23. However, its NIM has also been under pressure in FY24 due to higher non-CNY funding costs.
- As a G-SIB, BCHINA 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 upcoming government equity injection.
Key Metric
AS OF 02 Dec 2024| RMB bn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 1.55% | 1.48% | 1.39% | 1.31% | 1.23% |
| Credit Costs | 0.87% | 0.70% | 0.63% | 0.57% | 0.55% |
| Reported ROA | 0.87% | 0.89% | 0.85% | 0.80% | 0.75% |
| Reported ROE | 10.6% | 11.3% | 10.8% | 10.1% | 9.6% |
| Total Equity/Total Assets | 8.4% | 8.3% | 8.4% | 8.1% | 8.0% |
| CET1 Ratio | 11.3% | 11.3% | 11.8% | 11.6% | 12.2% |
| NPL Ratio | 1.46% | 1.33% | 1.32% | 1.27% | 1.26% |
| Loan-Deposit Ratio | 84% | 87% | 87% | 87% | 90% |
CreditSight View Comment
AS OF 01 Nov 2024BCHINA is one of the Big 4 banks (4th largest by assets) with a reasonable capital stack and sufficient liquidity. Its majority government ownership and systemic importance assures it of strong state support. Its NIM and profitability has trailed its more domestically-focused peers due to higher cost-income ratios of its overseas operations, but its credit costs are also the lowest among the Big 5. It had a larger QoQ NIM contraction than peers in 3Q24 as its overseas businesses are also faced with rate cuts. We have moved BCHINA 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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Search topics about wealth insights and investments.Industrial and Commercial Bank of China
- Sector: Financial Services
- Sub Sector: Banks
- Region: China
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Fundamental View
AS OF 02 Dec 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 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- With total assets in excess of RMB 48 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 also has an extensive international network.
Risk & Catalysts
AS OF 02 Dec 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, given its domestic TLAC issuance plan as well as the government’s plan to inject a total of RMB 1 tn of equity into the Big 6 banks.
Key Metric
AS OF 02 Dec 2024| RMB bn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 1.87% | 1.82% | 1.61% | 1.35% | 1.25% |
| Reported ROA | 1.00% | 1.02% | 0.97% | 0.87% | 0.78% |
| Reported ROE | 12.0% | 12.2% | 11.5% | 10.7% | 9.8% |
| Total Equity/Total Assets | 8.7% | 9.3% | 8.8% | 8.4% | 8.1% |
| CET1 Ratio | 13.2% | 13.3% | 14.0% | 13.7% | 14.0% |
| NPL Ratio | 1.58% | 1.42% | 1.38% | 1.36% | 1.35% |
| Provisions/Average Loans | 1.15% | 1.03% | 0.83% | 0.61% | 0.64% |
| Loan Deposit Ratio | 74% | 78% | 78% | 78% | 81% |
CreditSight View Comment
AS OF 01 Nov 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 but was overtaken by CCB at 1Q24. Its profitability and asset quality has 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. Its operating performance was weaker than most of its peers in 9M24, due to a larger NIM compression. We have moved ICBCAS 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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Search topics about wealth insights and investments.China CITIC Financial Asset Management (Huarong)
- Sector: Financial Services
- Sub Sector: Banks
- Region: China
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Fundamental View
AS OF 02 Oct 2024A large impairment loss in FY20 brought HRINTH to the brink of insolvency, but a state-led rescue plan provided HRINTH with liquidity support and brought its capital back above minimum requirements. CITIC has replaced the MoF as HRINTH’s largest shareholder. HRINTH remains as one of the Big 5 state-owned AMCs in China and will continue to perform national services.
On the guidance of the authorities, HRINTH has divested almost all of its non-core subsidiaries.
We expect HRINTH’s operational performance to remain weak until China’s economy is back on the upswing, residents regain confidence in the property market, and improved capital markets lead to better valuations on their securities books.
Business Description
AS OF 02 Oct 2024- China CITIC Financial Asset Management (formerly Huarong) is one of the five major state-owned asset management companies in China. It was first set up in 1999 to take over the bad debts of ICBC.
- The AMCs were originally due to be wound up after dealing with these "policy loans" that had come onto the books of the banks under government direction before their commercialisation, but the AMCs found a new role as commercial bad debt managers.
- HRINTH was commercialised in 2012 and completed its IPO on the HK stock exchange in 2015. Since then, HRINTH expanded its financial services to banking, financial leasing, securities & futures, trust, as well as consumer finance. However, after heavy losses in FY20, HRINTH divested much of its non-core business as directed by the authorities.
- Following the CITIC-led rescue plan of HRINTH and the planned equity transfer from the Ministry of Finance (MOF) to CITIC, CITIC has become HRINTH's largest shareholder (26.46%). Other significant shareholders include MOF (24.76%), Zhongbaorongxin (18.08%), Cinda AMC (4.89%), China Life Insurance (4.50%), National Social Security Fund (3.08%), Warburg Pincus (2.57%), and ICBC Financial AM (2.44%). HRINTH was renamed to share the "CITIC" brand in Nov-23.
Risk & Catalysts
AS OF 02 Oct 2024CITIC’s support is strong (name change, investment in CEB and CITIC Ltd, subsidiary disposal, new management team, etc.) and more meaningful to the company compared to direct ownership by the government.
Derisking continues with lower property exposure, non-core businesses have largely been disposed of and the company is able to focus on its main DDA business per the guidance of the authorities.
While HRINTH was able to deliver profit growth on the back of CITIC support and its associate interest holdings in CEB and Citic Ltd, core performance remains weak, and there could be continued volatility in the name.
AMCs may find it harder to dispose DDAs at good valuations amid a deceleration economic cycle. Longer holding periods and lower fair values of acquired DDAs could dampen return yields and increase the NPL ratio of restructuring-type DDAs.
Key Metric
AS OF 02 Oct 2024| CNY mn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| ROA | (6.40%) | 0.10% | (2.20%) | 0.02% | 1.00% |
| ROE | (147.6%) | 1.0% | (49.8%) | 3.6% | 21.2% |
| Total Capital Ratio | 4.2% | 13.0% | 15.1% | 15.1% | 16.1% |
| Leverage Ratio | 1,330.0x | 14.2x | 16.1x | 11.5x | 10.1x |
| Equity/Assets | 1.1% | 3.8% | 5.2% | 5.0% | 5.0% |
CreditSight View Comment
AS OF 02 Sep 2024CITIC AMC continued to post profits in 1H24, on the back large fair value gains from volatile other financial assets as well as on DDAs, reduced impairment losses and shared profits from its investments in CEB and CITIC Ltd. CITIC’s support is strong and more meaningful to the company compared to direct ownership by the government, derisking continues with substantially lower property exposures, non-core businesses have almost all been cleared, and the company is able to focus on main DDA business per the authorities’ guidance. However, we expect to continue to see high earnings volatility and poor disclosure is turning poorer still. We maintain our Market perform recommendation.
Recommendation Reviewed: September 02, 2024
Recommendation Changed: August 31, 2021
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Fundamental View
AS OF 17 Apr 2024We expect the credit profile of Sinopec, which is one of the three Chinese national oil companies (NOCs) to continue to be underpinned by its strategic role in China’s energy security and the resulting strong government support.
We expect Sinopec’s standalone credit profile to remain supported in FY24 by resilient refined oil demand and improving demand for chemical products as industrial activities pick up and the destocking trend ends.
To note, we use the financials of HKEx listed Sinopec Corp (386.HK) as a proxy for the credit profile of its parent, the obligor of the outstanding $ bonds (BBG: SINOPE).
Business Description
AS OF 17 Apr 2024- Sinopec Group is a Chinese integrated oil and gas (O&G) company and is one of the largest globally & domestically. In FY23, 56.1% of Sinopec Corp' external revenues came from marketing and distribution (i.e. retail and direct sales of refined oil), 13.1% from chemicals, 5.4% from refining, and 5.7% from E&P. Corporate and others segment accounted for the remaining 19.7% of sales revenue, consisting of import and export business, R&D and managerial activities.
- The refining segment purchases crude oil from third parties as well as the E&P segment of the company, and processes crude oil into refined petroleum product. Most of the gasoline, diesel and kerosene are sold internally to the marketing and distribution segment of the company; part of the chemical feedstock is sold internally to the chemical segment, and the other refined petroleum products are sold externally to both domestic and overseas customers. The marketing and distribution segment purchases refined oil products from the refining segment and third parties, and mainly distributes to domestic customers via its wholesale and retail networks.
- In FY23, Sinopec's total oil and gas output was 504 mn barrels of oil equivalent (mmboe), up 3.1% YoY; this included 252/29 mmbbls (+0.3%/-1.9%) of domestically produced/overseas crude oil, as well as 1,338 bcf of natural gas (+7.1% YoY). The average realized price of its crude oil and natural gas was $76.6/bbl and $7.1/thousand cubit feet respectively.
Risk & Catalysts
AS OF 17 Apr 2024Risks: Lower-than-expected domestic sales of refined oil and chemical products due to a severe economic downturn, higher-than-expected crude oil and gas feedstock costs resulted from geopolitical tensions, elevated inventory losses due to tumbling oil & gas prices, and large capex overrun result in a weaker standalone credit profile. However, we expect the strong government support to offset these downside risks. US sanction related headline risks due to US-China tension and other geopolitical risks.
Catalysts: inflow into China $ bonds as a result of improving China macro outlook and US-China relationship; stronger-than-expected recovery in chemical product demand.
Key Metric
AS OF 17 Apr 2024| RMB bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Total Debt/Capitalization | 27.8% | 25.3% | 25.6% | 27.5% | 31.5% |
| Net Debt/Capitalization | 17.3% | 9.4% | 7.6% | 16.3% | 19.8% |
| Total Debt/Total Equity | 38.6% | 33.8% | 34.5% | 38.0% | 46.1% |
| Total Debt/Total Assets | 19.2% | 17.2% | 16.7% | 18.3% | 21.7% |
| Total Debt/EBITDA | 1.6x | 1.5x | 1.2x | 1.5x | 2.0x |
| Net Debt/EBITDA | 1.0x | 0.6x | 0.4x | 0.9x | 1.3x |
| EBITDA/Gross Interest | 12.9x | 16.8x | 20.1x | 16.1x | 14.5x |
| EBITDA Margin | 7.3% | 9.5% | 9.4% | 7.0% | 6.8% |
CreditSight View Comment
AS OF 17 Apr 2024We affirm our Market perform recommendation on Sinopec (A1/A+/A+). A-rated Chinese state-owned enterprises (SOEs), including Sinopec are trading tight due to a lack of new supply and as investors fly to quality amid macro uncertainties in China. We continue to prefer AA-rated Korean quasi-sovereign names for safe carry (like KOROIL, KORGAS, KEPCO) and higher-beta Chinese SOEs for spread pickup.
Recommendation Reviewed: April 17, 2024
Recommendation Changed: May 03, 2021
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