HONG KONG, 3 April 2025. CSPI Ratings has affirmed Bank of China Limited’s (BOC) global-scale foreign-currency long-term issuer credit rating (LTICR) at ‘AA-’ and short-term issuer credit rating (STICR) at ‘A-1+’. The Outlook is Stable.
BOC’s LTICR incorporates a standalone credit profile (SACP) rating of ‘bbb+’. This reflects the Bank’s stronger overseas franchise, enhanced capital buffer, resilient profitability supported by business diversification, and strong funding and liquidity. It also considers BOC’s susceptibility to market volatilities. In addition, we believe that the Chinese government (‘AA’/Stable) has an extremely strong willingness to support BOC in times of need, given the state ownership, the Bank’s irreplaceable importance to the financial system, and its key role in government initiatives.
The stable outlook reflects our view that BOC will remain a fundamentally important component of China's financial system. As such, we expect the Chinese government will continue to demonstrate an extraordinarily strong willingness to provide support to BOC if needed.
We would consider downgrading BOC's long-term issuer credit rating if China's sovereign rating is downgraded and/or the government’s willingness to support noticeably weakens.
We would consider upgrading BOC's long-term issuer credit rating if China's sovereign rating is upgraded and/or the government's willingness to support further strengthens.
KEY RATING RATIONALE
Credit Strengths
Extremely Strong Government Support: We expect the Chinese government to demonstrate an extraordinarily strong willingness to support BOC in times of need. As one of China's six major state-owned banks, BOC's long-term strategy is largely aligned with public policy objectives. BOC's management has articulated a strategy focused on supporting the Chinese government's aims to buttress strategically significant industries, maintain financial and social stability, and advance key initiatives in economic recovery. Given the long history of Chinese government support and its quasi-policy role, we believe Bank’s important position will continue over the medium to long term.
Stronger Overseas Franchise: BOC’s market franchise is supported by its global network, with more extensive overseas branches, and greater capabilities to capture more cross-border businesses than state-owned peers. As of the end of 2024, BOC had 543 overseas institutions spanning across 64 countries and regions globally, with the number of overseas institutions and personnel and regional coverage consistently ranking first among the state-owned peers. We believe that BOC will maintain its status as a global systemically important bank (G-SIB) and a domestic systemically important bank (D-SIB) in China, considering it ranks as the fourth largest bank in the world and China in terms of its total assets.
Enhanced Loss-absorption Buffer: We forecast BOC to enhance its capital profile over the next 12-18 months, given its long track record of keeping a healthy loss-absorption buffer and the government's plan to issue special bonds to replenish the capital of large state-owned banks. During 2023, BOC successfully issued RMB 30 billion of perpetual capital bonds and RMB 220 billion of Tier 2 capital bonds. During 2024, BOC successfully issued RMB 50 billion of perpetual capital bonds and RMB 120 billion of Tier 2 capital bonds. The Bank registered abundant capitalization with a common equity tier 1 (CET1) capital ratio of 12.2%, a tier 1 capital ratio of 14.4%, and a total capital adequacy ratio (CAR) of 18.8% as at the end of 2024.
Chinese regulators require systemic banks, such as BOC, to hold additional capital surcharges and leverage ratios to maintain stability and control systemic risks. China's Total Loss-Absorbing Capacity (TLAC) rules, aligned with international standards, impose additional capital surcharges and minimum TLAC requirements of risk-weighted assets (RWA) and leverage ratio exposure (LRE) for enlisted D-SIBs to further boost their capital strength against unexpected crises. In January 2024, BOC announced its decision to issue TLAC non-capital bonds in the next two years, with a scale of no more than RMB150 billion. In May 2024, BOC successfully issued RMB25 billion, RMB15billion of TLAC non-capital bonds, with a coupon rate of 2.25% and 2.35%, respectively.
On March 31, 2025, BOC announced to issue A-shares to the Ministry of Finance of the People's Republic of China, with no more than RMB165 billion. After deducting the relevant issuance expenses, all funds will be used to increase the Bank's CET1 capital. We believe that this will further enhance the Bank's capitalization profile and improve its risk resistance capability.
Resilient Profitability Benefits from Diversification: BOC’s profitability will continue to be resilient within our rating horizon. The asset yield decreased by 24 basis points to 3.34% in 2024 due to cuts of central bank’s loan prime rates (LPR) and re-pricing of the existing mortgage loan rates in the onshore market, which is partially counterbalanced by the increase yield on the Bank’s foreign currency assets. Meanwhile, as BOC continued to strengthen funding cost control and optimized the structure of deposit products, the funding cost decreased by 6 basis points to 2.12%, resulting in BOC’s net interest margin (NIM) narrowed 19 basis points to 1.40% in 2024.
BOC’s other non-interest income increased significantly by 35.0% in 2024, mainly due to the expansion of non-RMB investment asset, and the increase in investment income amid market fluctuations. In addition, driven by the management’s stringent cost control and optimization of expense structure, BOC’s cost-income ratio was 28.8% in 2024, which was at the lower end among state-owned banks. In terms of geographical distribution, BOC’s overseas business generated around 22.3% of the group’s profit, providing the Bank a competitive advantage in earning mix.
Strong funding and liquidity: We believe that BOC will maintain its good funding structure, given its vast retail deposit base. Customer deposits are the Bank’s primary source of funding. Its customer deposits increased by 5.7% in 2024 to RMB24.2 trillion, and its proportion to total liabilities was 75.4%. The Bank also has abundant liquidity, with a liquidity coverage ratio of 142.9% and a net stable funding ratio of 128.2% at the end of 2024, both of which were much higher than the minimum regulatory requirement of 100%.
We anticipate that BOC and other large state-owned banks will benefit from the risk aversion of market funds when overall confidence in the financial sector deteriorates. Hence, we believe they will have a stronger and more stable liquidity profile in stressed markets than other small and medium-sized banks, whose funding is more vulnerable to market shocks.
Credit Weaknesses
Vulnerability to Economic Volatilities: As a major state-owned bank, BOC will continue to be subject to a high degree of market volatility, as the Bank is tasked with policy mandates to support economic growth and industry developments. BOC’s loan portfolio tracks closely with that of the broader market, with large exposure to commercial services, manufacturing and transportation, representing 14.8%, 12.7% and 10.3% of total loans at the end of 2024, respectively.
The complex and challenging international and domestic situation is likely to continue to put pressure on BOC’s asset quality and earnings. The intensified international geopolitical conflicts, insufficient momentum of global economic growth, and divergence in the monetary policies of major developed economies may increase the volatility of global financial markets. Domestically, the slow recovery of the domestic macroeconomy, the mounting pressure in the property and LGFV sectors, and the tightening of financial regulation have led to the credit risk exposure in certain regions and industries.
Note: The ratings mentioned above are unsolicited.
ANALYSTS CONTACT
Primary Analyst
Tingting Qiao
+852 59508746
tingting.qiao@cspi-ratings.com
Secondary Analyst
Stella Shi
+86 755 8287 2106
Committee Chair
Larissa Wu
+852 3615 8317
MEDIA CONTACT
RATING SERVICE CONTACT
Allen Wei
+852 3615 8324
Date of Relevant Rating Committee: 28 March 2025
Additional information is available on www.cspi-ratings.com
Related Criteria
Global Banking Rating Criteria (16 August 2019)
Government-Related Entities Rating Criteria (31 August 2018)
Rating Symbols and Definitions (7 May 2018)
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