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Sub-sector: Banks
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Fundamental View
AS OF 10 Dec 2024WFC is a leading domestic bank with strong positioning across consumer and commercial lending asset classes and a top 3 deposit market share in the U.S.
The core credit risk profile remains solid; the company has actively shed non-core assets and business lines (including WFAM), both as a means of managing under the Fed’s asset cap and part of new-ish CEO Scharf’s streamline strategy.
The balance sheet is strong, but WFC continues to suffer from internal deficiencies across a range of compliance and risk mgmt. functions unearthed after the fake account scandal. Positively, the Fed reportedly approved WFC’s overhaul plans, a crucial step in the remediation process; WFC also continues to close outstanding consent orders, though some remain outstanding.
Business Description
AS OF 10 Dec 2024- Wells Fargo ranks as the U.S.'s 4th largest bank by total assets ($1.92 tn at 3Q24) and 3rd largest by total deposits ($1.35 tn).
- Wells Fargo ranks 3rd in terms of U.S. deposits with approximately $1.37 tn in deposits at YE23 and 4,379 branches across the U.S. (S&P Capital IQ). The company has leading market shares across its geographically diverse footprint, including in California (#3), South Dakota (#2), Florida (#2), Texas (#3), Minnesota (#2), and Georgia (#3).
- Wells Fargo's major business lines include U.S. retail banking, mortgage banking, consumer finance, corporate and middle market banking, and wealth management.
Risk & Catalysts
AS OF 10 Dec 2024The asset cap and associated regulatory remediation remains a millstone with an unknown timeframe, though recent reporting has the cap being lifted in 2025. There was some risk that Wells could bleed share and franchise value in an economic recovery if the company cannot fully capture the business opportunity due to the asset cap, though so far that has not been the case given freed up balance sheet capacity earlier in 2020-22 and the sharp slowdown in loan growth since.
Wells Fargo faces reputational risk tied to those misconduct and business practices scandals, though likely fading with time and remediation progress; at 3Q24, WFC high-end estimable loss above legal accruals was $2 bn.
Wells has less fee income diversification as peers, largely due to the much smaller scale of the capital markets businesses and smaller presence in credit cards, both points of emphasis under Scharf as Wells embarked on aggressive card product refreshes and trading buildout.
Key Metric
AS OF 10 Dec 2024| $ mn | FY20 | FY21 | FY22 | FY23 | 3Q24 |
|---|---|---|---|---|---|
| ROAE (annual) | 1.8% | 11.4% | 7.3% | 10.5% | 9.9% |
| ROAA (annual) | 0.17% | 1.11% | 0.70% | 1.00% | 0.94% |
| PPNR / Avg. Assets | 0.72% | 1.26% | 0.91% | 5.14% | 1.35% |
| Efficiency Ratio | 81% | 70% | 78% | 281% | 68% |
| Net Interest Margin (Annual) | 2.27% | 2.05% | 2.63% | 3.05% | 2.79% |
| Net charge-offs (LTM) / Loans | 0.34% | 0.18% | 0.17% | 0.37% | 0.52% |
| Common Dividend Payout | 152% | 11% | 32% | 108% | 28% |
| CET1 Ratio | 11.6% | 11.4% | 10.6% | 11.4% | 11.3% |
| Supplementary Leverage Ratio (SLR) | 8.1% | 6.9% | 6.9% | 7.1% | 6.9% |
| Liquidity Coverage Ratio (LCR) | 133% | 118% | 122% | 125% | 125% |
CreditSight View Comment
AS OF 05 Dec 2024Our move to an Outperform view in 3Q24 is predicated on spread value among Big 6 peers, with WFC anchored at the wide end since SVB despite trading firmly through bellwether JPM for most of the past decade. Though unlikely to move spreads, when WFC is finally released from the asset cap (rumored for 2025) it will have credible claim to the best-in-class risk management and compliance framework, which has real value for bondholders and should reduce headline/noise risk going forward. Regulatory-driven supply risk has abated with BISIII delay and softening, but could still be a headwind as WFC will look to grow capital markets post-asset cap. The strong fundamental risk profile is highlighted by 11%+ CET1, improved/improving profitability, and the right strategic moves under CEO Scharf.
Recommendation Reviewed: December 05, 2024
Recommendation Changed: October 14, 2024
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Fundamental View
AS OF 10 Dec 2024JPMorgan is one of the strongest and best positioned banks to navigate the current environment, with a well-diversified business model and good competitive positioning across a variety of lending and capital markets areas.
The company continues to deploy its considerable earnings power into reinvestment, specifically around technology where we are bullish on its ability to drive competitive advantages through strategic enhancements and efficiency gains.
Business Description
AS OF 10 Dec 2024- JPMorgan ranks as the largest U.S. bank by total assets ($3.87 tn at 3Q24) and deposits ($2.40 tn at 3Q24).
- JPMorgan ranks 1st in terms of U.S. deposits with approximately $2.07 tn in deposits at YE23 across 4,891 branches (S&P Capital IQ). JPMorgan's footprint includes New York (#1), Texas (#1), California (#2), Illinois (#1), Michigan (#1), Arizona (#1), Ohio (#5), and Florida (#4), among others.
- JPMorgan's major business lines include investment banking, retail banking, card services, treasury & securities services, commercial banking, and asset & wealth management.
Risk & Catalysts
AS OF 10 Dec 2024Succession planning at JPMorgan has a higher profile than many peers, with CEO Dimon (68 year-old) having held the top spot for over 15 years. Another recent round of shuffling top management did not yield much clarity, with presumed frontrunners Marianne Lake becoming sole CEO of the Consumer Bank and Jennifer Piepszak moving over to co-CEO of the new Commercial & Investment Bank segment, alongside Troy Rohrbaugh who has been running Markets & Securities Services.
The sector remains exposed to reputational, legislative/administrative risk, and cyber threats, although the significant tech spend over the past few years should (theoretically) result in a stronger position for JPM to manage the security threats.
Although not likely a credit risk, JPMorgan may continue to be acquisitive around non-bank financial and ancillary services; but we would expect any deal to be conservatively funded and looking to further technology and fee income strategies (e.g. payments or asset management).
Key Metric
AS OF 10 Dec 2024| $ mn | FY20 | FY21 | FY22 | FY23 | 3Q24 |
|---|---|---|---|---|---|
| ROAE (annual) | 10.9% | 17.0% | 13.2% | 16.0% | 16.2% |
| ROAA (annual) | 0.9% | 1.3% | 1.0% | 1.3% | 1.3% |
| PPNR / Avg. Assets | 1.52% | 1.32% | 1.39% | 7.06% | 1.91% |
| Efficiency Ratio | 57% | 59% | 58% | 214% | 56% |
| Net Interest Margin (Annual) | 1.98% | 1.63% | 2.00% | 2.70% | 2.68% |
| Net charge-offs (LTM) / Loans | 0.52% | 0.26% | 0.25% | 0.48% | 0.62% |
| Common Dividend Payout | 38% | 24% | 32% | 101% | 25% |
| CET1 Ratio | 13.1% | 13.1% | 13.2% | 15.0% | 15.3% |
| Supplementary Leverage Ratio (SLR) | 6.9% | 5.4% | 5.6% | 6.1% | 6.0% |
| Liquidity Coverage Ratio (LCR) | 110% | 110% | 110% | 112% | 112% |
CreditSight View Comment
AS OF 05 Dec 2024Our upgrade to an Outperform view on JPM is all about defensive value: rightfully perceived as the industry bellwether, spread differentials among Big 6 peers have collapsed with investors now able to rotate into highest quality with only a nominal spread sacrifice. Bank spreads also still look fairly cheap against corporates, especially the more defensive A-tier given record tight quality spreads in IG, further underpinning our bullish view. Technicals may be mildly supportive, with larger JPM facing ~$25 bn in maturities/calls in FY25, below BAC with peer banks in the $21-22 bn range. Core credit strengths including capitalization may slide with the BISIII softening and delay, but from an extremely strong starting point.
Recommendation Reviewed: December 05, 2024
Recommendation Changed: December 05, 2024
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Fundamental View
AS OF 09 Dec 2024BNP’s financial strength is based on its strong franchises across retail, commercial and investment banking, and its wide business and geographic diversification. Profitability is sound and fairly resilient, while asset quality has held up well.
Uncertainty around the financial health of the French sovereign and its ratings have the capacity to weigh on BNP’s stock price and its credit spreads.
Capital ratios are run tightly considering BNP’s balance sheet size, although this is in the context of its liquid and well-managed risk profile.
Business Description
AS OF 09 Dec 2024- BNP is one of the most diversified banking groups in Europe, having been created from a merger of the retail/commercial bank BNP and the corporate/investment bank Paribas in 2000.
- Domestic Markets (DM) comprises the Group's four retail banking networks in the eurozone and its three specialised business lines (including leasing and digital banking). The retail banks are French Retail Banking (FRB), BNL in Italy, BNP Paribas Fortis in Belgium and BGL BNP Paribas in Luxembourg.
- International Financial Services (IFS) includes consumer finance, asset management and private banking, and subsidiaries in non-eurozone countries, including TEB in Turkey and BNP Paribas Bank Polska.
- Corporate & Institutional Banking (CIB) is a global provider of financial solutions to corporate and institutional clients and includes BNP's extensive trading and investment banking businesses.
Risk & Catalysts
AS OF 10 Dec 2024Pressure on margins is high in Personal Finance, and despite the change in product mix – reducing the concentration in Personal loans and credit cards and moving to Auto loans, it was still a difficult FY23.
BNP Paribas remains the subject of various claims concerning the Madoff matter; amongst other claims. Litigation provisions on the balance sheet stood at €841 mn at 30 June 2024. BNP says the latest claims against it stand at $1.1 bn as of June 2024.
If there was a negative rating action on the sovereign via an outlook change or notch downgrade, it is possible that BNP’s ratings will be impacted but it is difficult to say with any uncertainty. France represents around 30% of revenues and gross commitments on balance sheet and sovereign bond holdings are moderate; we discuss more below.
BNP is increasingly using significant risk transfers, mainly synthetic securitisations of loan portfolios, to gain regulatory capital relief and manage credit risk.
Key Metric
AS OF 09 Dec 2024| mn | 3Q24 | Y23 | Y22 | Y21 | Y20 |
|---|---|---|---|---|---|
| Return On Equity | 9.3% | 9.0% | 8.2% | 8.2% | 6.4% |
| Total Revenues Margin | 1.8% | 1.7% | 1.7% | 1.8% | 1.9% |
| Cost/Income | 60.4% | 62.6% | 60.7% | 67.3% | 68.2% |
| CET1 Ratio (Transitional) | 12.7% | 13.2% | 12.3% | 12.9% | 12.8% |
| CET1 Ratio (Fully-Loaded) | 12.7% | 13.2% | 12.3% | 12.9% | 12.8% |
| Leverage Ratio (Fully-Loaded) | 4.4% | 4.6% | 4.4% | 4.1% | 4.9% |
| Liquidity Coverage Ratio | 124.0% | 148.0% | 129.0% | 143.0% | 154.0% |
| Impaired Loans (Gross)/Total Loans | n/a | 2.9% | 2.9% | 3.3% | 3.6% |
CreditSight View Comment
AS OF 02 Dec 2024BNP remains one of the more diversified bank names in Europe. Its strong business and geographic diversification has helped it maintain good profitability and asset quality. It has extensive operations in Italy via its subsidiary BN. Earnings have been resilient and CIB in particular a stand-out performer. Liquidity and funding metrics look sound. Asset quality has held up well, although an outlier is the group’s personal finance business. The latter is being restructured, to focus more on auto finance rather than personal lending. BNP’s capital position strengthened in 2024 but it will weaken in 2025/6. It is looking to expand now in insurance and asset management, likely to grow fee income. A catalyst remains potential negative rating changes.
Recommendation Reviewed: December 02, 2024
Recommendation Changed: October 30, 2018
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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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Fundamental View
AS OF 02 Dec 2024Bangkok Bank (BBL: Baa1(stb)/BBB+(stb)/BBB(stb)) is a family run conservative financial institution, with high capital and liquidity levels.
It acquired Indonesia’s Permata Bank in 2020 which resulted in a meaningful decline in its CET1 ratio to 14%. It is back to ~16% range and management aims to keep the CET1 ratio at ~16% in prepartion for Basel III final reforms.
Profitability (ROA and ROE) has historically been below the industry average, due in part to higher exposure to the lower-yielding corporates segment that has resulted in a lower NIM. However, the returns gap has narrowed as this has supported its asset quality outperformance versus peers in the current sluggish macroeconomic environment.
Business Description
AS OF 02 Dec 2024- Bangkok Bank was set up in 1944 and was listed on the Stock Exchange of Thailand in 1975. It is a family-run bank and the current President of the bank, Chartsiri Sophonpanich, is the grandson of the founder of the bank.
- It is the largest bank by assets in Thailand. It was briefly surpassed by Kasikornbank in 2018, but the Bank Permata acquisition has taken BBL back to No.1.
- The bank is corporate-loan focused, and the loan book was split 46% corporate, 18% SME, 12% retail, and 24% international as at end-September 2024. It is by far the most international amongst the Thai banks, with branches in 14 economies.
- BBL's overseas presence has been enhanced by the acquisition of Bank Permata, the 12th largest bank in Indonesia. Bank Permata's asset size is ~10% of that of BBL.
Risk & Catalysts
AS OF 02 Dec 2024Returns have caught up well with peers as the more resilient large corporate book has supported lower credit costs and better BOT rate hike pass through to the NIM, given the backdrop of high household debt, challenged SMEs and sluggish growth momentum. However, we see greater NIM pressure on BBL than most peers henceforth as rate cuts flow through, due to its larger domestic and international corporate loan book (which tend to be floating rate).
Loan growth has been middling across the Thai banks due to a focus on quality amid the current backdrop.
The acquisition of Bank Permata of Indonesia in May 2020 provides BBL with exposure to the high growth opportunities of the Indonesian market, which is the bank’s identified main base for overseas expansion, but this also presents higher risks.
Key Metric
AS OF 02 Dec 2024| THB mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 1.50% | 1.65% | 1.60% | 1.92% | 2.08% |
| ROA | 0.49% | 0.65% | 0.67% | 0.93% | 1.03% |
| ROE | 3.9% | 5.6% | 5.9% | 8.1% | 8.5% |
| Equity / Assets | 11.8% | 11.4% | 11.5% | 11.8% | 12.3% |
| CET1 Ratio | 14.9% | 15.2% | 14.9% | 15.4% | 16.6% |
| Calculated NPL ratio | 3.90% | 3.20% | 3.10% | 2.70% | 3.40% |
| Provisions / Loans | 1.41% | 1.38% | 1.24% | 1.26% | 1.35% |
| Gross LDR | 84% | 82% | 84% | 84% | 85% |
| Liquidity Coverage Ratio | 291% | 270% | 271% | n/m | n/m |
CreditSight View Comment
AS OF 22 Oct 2024Bangkok Bank’s strength has been its large corporate book and strong capital. Returns though have been lower due to thinner corporate margins, and we see greater NIM pressure on BBL than most peers from the turn in base rates. BBL completed the acquisition of Indonesia’s Bank Permata (~12% of loans) in 2Q20 which reduced its CET1 ratio to 14%, but it has since rebuilt it to >16%. While disclosure from BBL is less than other key Thai banks and both systems face an overhang of COVID relief loans, we take comfort from BBL’s strong loss buffers and large corporate book which will aid stable asset quality and credit costs. We keep BBL on M/P but think its seniors should trade around 5 bp inside its Thai peers.
Recommendation Reviewed: October 22, 2024
Recommendation Changed: January 25, 2023
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Fundamental View
AS OF 02 Dec 2024- Our credit view on AGRBK (credit ratings: A1(neg)/A(stb)/A(neg)) is based on a strong likelihood of state support, given its large size, systemic importance and majority state ownership. This is enhanced by AGRBK’s extensive presence in rural areas.
- AGRBK’s capital standing is weaker than those of peer-group leaders ICBCAS and CCB; however it has peer-leading reserve coverage ratio. The Big 4 have been managed more prudently in recent years than the non-Merchants joint stock banks.
- We view it as a strong credit taking into account its structural profitability, robust balance sheet metrics, large size, and systemic importance that assure it of state support if needed.
Business Description
AS OF 02 Dec 2024- AGRBK has surpassed CCB to become the second-largest bank in China in terms of total assets and has been moved from bucket 1 to bucket 2 in the G-SIB list with a capital surcharge of 1.5%.
- It was founded in 1951 as the Agricultural Cooperative Bank, merged with the central bank and spun out as AGRBK in 1979, charged with financing the rural and agricultural sectors. It was recapitalised in 1999 and again in 2007 by special MOF bonds. It also received $19 bn in equity capital from Huijin, funded by China's FX reserves.
- Due to its poorer asset quality and weaker profitability, AGRBK was the last of the Big 4 banks to be listed in 2010.
- The Chinese government is a majority shareholder of AGRBK via Central Huijin (40.14%), MOF (35.29%) and the Social Security Fund (6.72%).
- AGRBK has the second largest branch network in China after Postal Bank, with a strong presence in rural areas.
Risk & Catalysts
AS OF 02 Dec 2024- China’s sovereign ratings (A1(neg)/A+(stb)/A+(neg)) are a key factor behind AGRBK’s credit standing.
- AGRBK’s loan growth has been the strongest among the Big 5 banks since FY22, but the impact on net interest income growth was largely offset by a significant contraction in NIM. Rapid loan growth has led to a widened capital ratio differential between AGRBK and other Big 4 banks. It was promoted to a Bucket 2 G-SIB in Nov-23 and currently 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.
- AGRBK is managed on commercial terms but the government may call on it to perform “national service” that overrides profitability considerations. However, we do not see it as a clear credit negative, as these actions reflect close state links that underpin AGRBK’s credit standing.
Key Metric
AS OF 02 Dec 2024| RMB bn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 1.65% | 1.64% | 1.43% | 1.20% | 1.19% |
| Reported ROA | 0.83% | 0.86% | 0.82% | 0.73% | 0.69% |
| Reported ROE | 11.4% | 11.6% | 11.3% | 10.9% | 10.8% |
| Total Equity/Total Assets | 8.1% | 8.3% | 7.9% | 7.2% | 6.9% |
| CET1 Ratio | 11.0% | 11.4% | 11.2% | 10.7% | 11.4% |
| NPL Ratio | 1.56% | 1.43% | 1.37% | 1.33% | 1.32% |
| Credit Costs | 1.16% | 1.03% | 0.79% | 0.64% | 0.74% |
| Loan-Deposit Ratio | 74% | 78% | 79% | 78% | 83% |
CreditSight View Comment
AS OF 01 Nov 2024AGRBK is the 2nd-largest Chinese banks by assets and has a strong presence in rural areas, which gives it access to a large pool of low-cost deposits. We view it as a strong credit due to its structural profitability, robust balance sheet metrics, large size and systemic importance that assure it of state support. Its loan growth has led peers for many years, which has put its capital ratios under pressure, with some distance vs. the other Big 4 banks. Reserve cover is a strength at ~300%. AGRBK managed to report pre-provision profit growth in 9M24, due to stronger loan growth. But its capital ratios were behind the other Big 4 banks. We have moved AGRBK 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.Kasikornbank
- Sector: Financial Services
- Sub Sector: Banks
- Region: Thailand
- Bond: KBANK 5.458 28
- Indicative Yield-to-Maturity (YTM): 4.77%
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Fundamental View
AS OF 02 Dec 2024- Kasikornbank (KBANK; Baa1(stb)/BBB(stb)/BBB(stb)) is a historically sound and profitable bank.
- Capitalisation is strong and the bank has among the highest CASA ratios in the banking sector. However, asset quality took a surprise turn for the worse in 4Q22 due to its larger SME exposure, and credit costs remain elevated.
- Margins are high among the Thai banks we cover as a result of its strong SME franchise, but the NIM has been falling steadily over the past 5 years as a result of strong competition and recent growth focus on the safer but lower yielding segments to diversify its exposure.
Business Description
AS OF 02 Dec 2024- KBank is currently the second largest bank in Thailand. It briefly was the largest from 2018 until mid-2020, upon which Bangkok Bank completed its acquisition of Indonesia's Bank Permata and took its place.
- KBank's history can be traced back to 1945 when it was first established as Thai Farmers Bank. It was listed on the Stock Exchange of Thailand in 1976 and changed its name to Kasikornbank in 2003.
- As of end-September 2024, the bank's loan mix by segment consists of 39% corporate, 27% SME, 28% retail and 6% others.
- KBank is known for its strong SME franchise. Its focus industries in SME are construction, construction materials, food & beverage, and hardware.
- It partially owns a life insurance company, Muang Thai Life.
Risk & Catalysts
AS OF 02 Dec 2024- Sluggish economic momentum and challenged SMEs have resulted in still elevated credit costs at KBANK, given its larger SME and Blue scheme book. KBANK’s higher NIM and low-40%s cost-income ratio however provide comfortable room to absorb its higher credit costs and maintain a similar level of returns as peers.
- Loan growth has been middling across the Thai banks due to a focus on quality given elevated household debt and challenged SMEs, and a larger and prolonged balance sheet cleanup at KBANK which is slated to be completed by YE24 (post which credit costs are expected to fall to 140-160 bp in FY25).
- KBANK’s NIM remains high compared to its peers. Its switch to focus on safer segments however is weighing on the NIM, though it has helped to stabilize credit costs.
Key Metric
AS OF 02 Dec 2024| THB mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 2.44% | 2.38% | 2.36% | 2.52% | 2.63% |
| ROA | 0.85% | 0.98% | 0.86% | 0.99% | 1.18% |
| ROAE | 7.0% | 8.3% | 7.3% | 8.2% | 9.3% |
| Equity / Assets | 13.4% | 13.1% | 13.4% | 13.9% | 14.2% |
| CET1 Ratio | 15.5% | 15.5% | 15.9% | 16.5% | 17.6% |
| Gross NPL ratio | 3.93% | 3.76% | 3.19% | 3.19% | 3.20% |
| Provisions / Loans | 2.05% | 1.73% | 2.11% | 2.08% | 1.90% |
| Gross LDR | 96% | 93% | 91% | 92% | 88% |
| Liquidity Coverage Ratio | 161% | 174% | 164% | n/m | n/m |
CreditSight View Comment
AS OF 22 Oct 2024Kasikornbank is the 2nd largest bank in Thailand. We are cautious about its one third loan book exposure to SMEs given their challenges, but have liked the bank’s high NIM and strong capital. Credit costs spiked in 4Q22 mainly from the SME book and high yield small ticket lending, and remain elevated in FY24 given the larger SME and Blue scheme book. The bank however has switched to focus on safer segments, which has weighed on the NIM but helped to stabilize credit costs. It has been cleaning up its balance sheet, which should complete by YE24, post which credit costs are expected to fall to 140-160 bp in FY25. Credit costs have been comfortably absorbed thus far. We keep KBANK on M/P and see ~5 bp outside BBL as fair.
Recommendation Reviewed: October 22, 2024
Recommendation Changed: June 09, 2023
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Fundamental View
AS OF 29 Nov 2024Krung Thai Bank (KTB; Baa1(stb)/ BBB-(pos)/ BBB+(stb)) is the 3rd largest bank by assets in Thailand, with a 55.07% state ownership through the Financial Institutions Development Fund. Strong government support underpins KTB’s underlying credit profile.
The state influence opens the bank up to potentially government-directed lending; it has secured an increasingly meaningful portion of banking business from government agencies and State Owned Enterprises, which underscored its one-notch upgrade by Fitch in Dec-21.
KTB was faced with asset quality challenges in the past and had the highest NPL ratio and restructured loans among the major Thai banks. It has since de-risked its loan book, and asset quality has proven to be more resilient than its peers with lower COVID-19 restructured loans.
Business Description
AS OF 29 Nov 2024- KTB is the 3rd largest bank by assets in Thailand. The Thai Financial Institutions Development Fund owns 55.07% of the bank, and has a free float of 44.93%.
- Being the largest state-owned bank, it secures a meaningful portion of banking business from government agencies and State Owned Enterprises (SOEs) and per the bank, is the preferred bank for the government and SOE employees.
- Though state owned, the bank runs on a commercial basis and is not considered as a policy bank.
- KTB's loan profile comprised 46% retail, 27% private corporates, 11% SME, and 16% Government & SOEs at end-September 2024.
Risk & Catalysts
AS OF 29 Nov 2024KTB’s conservative focus on the government agencies/SOEs segment is supporting asset quality well amid the challenging macro environment and sluggish growth momentum.
We see KTB’s margin coming under greater pressure than peers as rate cuts come through given the larger corporate/SOE loan book (which tend to be floating rate). Loan growth has also been middling across the Thai banks due to a focus on quality amid the current backdrop.
We see a two-notch differential between the standalone credit fundamentals of KTB vs. the other top Thai banks at Moody’s as wide, and think there is an upgrade potential for KTB’s standalone credit profile in the medium term.
Key Metric
AS OF 29 Nov 2024| THB mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 2.17% | 1.83% | 1.98% | 2.40% | 2.51% |
| ROA | 0.53% | 0.63% | 0.94% | 1.01% | 1.21% |
| ROE | 4.9% | 6.1% | 9.2% | 9.4% | 10.7% |
| Equity/Assets | 10.7% | 10.5% | 10.9% | 11.4% | 12.3% |
| CET1 Ratio | 15.4% | 15.6% | 15.6% | 16.5% | 18.0% |
| Calculated NPL ratio | 3.81% | 3.50% | 3.26% | 3.08% | 3.14% |
| Provisions/Loans | 2.03% | 1.31% | 0.93% | 1.43% | 1.26% |
| Gross LDR | 99% | 99% | 98% | 104% | 97% |
| Liquidity Coverage Ratio | 188% | 196% | 201% | n/m | n/m |
CreditSight View Comment
AS OF 22 Oct 2024KTB is the 3rd largest bank in Thailand by assets and the largest state-owned bank. It is 55% indirectly owned by the Thai government and thus secures meaningful business from government agencies and SOEs (~16% of total loan book). KTB was faced with asset quality challenges in the past and had the highest NPL ratio among the major Thai banks. Its fundamentals have improved as it de-risked its loan book, so asset quality was more resilient than peers during COVID, and credit costs have remained in the normal 120-130 bp range this year. We see greater NIM pressure on KTB than most peers from the turn in base rates, given its larger corporate book and higher CASA mix (~80%). The CET1 ratio is solid at 18.0%. We have it on M/P as the $ AT1 is trading in line with its Thai peers.
Recommendation Reviewed: October 22, 2024
Recommendation Changed: July 22, 2024
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