HONG KONG, 25 June 2024. CSPI Ratings has affirmed China Construction Bank Corporation’s (CCB) global-scale long-term issuer credit rating (LTICR) of ‘AA-’ and short-term issuer credit rating (STICR) of ‘A-1+’. The Outlook is Stable.
The Bank’s LTICR incorporates a standalone credit profile (SACP) of ‘a-’, which considers its outstanding market franchise, strong capitalization, stable asset quality, and above-average profitability. It also takes into account CCB’s susceptibility to economic volatilities with continuous pressures on asset quality and profitability. In addition, we believe that the Chinese government (‘AA’/Stable) has an extremely strong willingness to support CCB in times of need, given the state ownership, the Bank’s irreplaceable importance to the financial system, and its quasi-policy role to the government initiatives.
The Stable Outlook reflects our view that CCB will remain an integral part of the Chinese financial system and, as such, the government will continue to have an extremely strong willingness to provide support.
We would consider downgrading the Bank if the LTICR of the sovereign is downgraded and/or if the government’s willingness to support noticeably weakens.
We would consider upgrading the Bank if the LTICR of the sovereign is upgraded and/or the government’s willingness to support further strengthens.
KEY RATING RATIONALE
Credit Strengths
Extremely Strong State Support: We forecast the government’s willingness to support CCB in times of need to be extremely strong, given the Bank’s state ownership of 57.1% directly under Central Huijin as of end-2023, critical importance to the government, and global systemically importance position.
As one of the six officially designated large state-owned banks in the country, CCB has an irreplaceable position in the domestic financial market, especially in the fields of infrastructure construction and housing mortgage. CCB’s long-term strategy is, to a large extent, formulated with public policy in mind. This is reflected in management’s publicly stated strategic statement to support the government’s objectives to shore up strategically important industries and maintain system and social stability. Furthermore, we believe the Bank’s current market position, profitability, and capital level are fully supportive of its sustainable role as a critical GRE.
Outstanding market franchise: We expect CCB’s market franchise to remain vigorous, considering its position as the second largest commercial bank in the world and in China in terms of loan size and total shareholder equity. These warrant its status as a global systemically important bank (G-SIB) and a domestic systemically important bank (D-SIB). CCB had a stable domestic market share of around 9% in loans and deposits at the end of 2023, supported by its extensive network of 14,895 branches and service outlets and its full range of businesses providing comprehensive financial services. The Bank has a competitive advantage in housing mortgage sectors. As of end-2023, CCB’s domestic residential mortgages totaled RMB6.39 trillion, which was at the leading level among the Large State-owned Banks (‘LSOB’).
Strong capitalization: We see CCB’s capital profile as strong, with a common equity tier 1 (CET1) capital ratio of 13.2%, a tier 1 capital ratio of 14.0%, and a total capital adequacy ratio (CAR) of 18.0% at the end of 2023. CCB has continuously maintained its capital profile at a relatively higher level through stable retained earnings and capital instrument issuance. In 2023, the bank collectively issued Tier 2 capital bonds of RMB120 billion and undated additional Tier 1 capital bonds of RMB60 billion. In February 2024, the bank issued Tier 2 capital bonds of RMB50 billion. Despite the bank’s capitalization showed a slightly decrease due to a higher risk-weighted asset growth rate of 13.3% during 2023, we see that CCB’s capitalization metrics have been consistently higher than the sector average and the LSOB average, which helps to support its business development and strategy promotion across the bank.
Stable asset quality: We expect CCB to maintain stable asset-quality metrics due to manageable non-performing-loan (NPL) formation on the back of continuous economic recovery and the Bank’s NPL resolution. CCB’s NPL ratio improved to 1.37% at the end of 2023 from 1.38% at the end of 2022 despite the real-estate NPL ratio rising to 5.6% from 4.4%. Its overall NPL ratio was compared favorably to the sector average of 1.59% but slightly weaker than the LSOB average of 1.25%. The special mention loan (SML) ratio decreased to 2.44% at the end of 2023 from 2.52% at end-2022. The provision coverage ratio was stable at 239.85% at the end of 2023, compared to the sector average of 205.14% and the LSOB average of 248.69%, with sufficient risk mitigation capacity. Its direct exposure to developers stayed at a modest 3.6% of loans. The exposure to mortgages with delivery issues in its outstanding mortgage loans was minimal.
We notice that CCB’s percentage of loans overdue more than 3-month increased to 0.77% at the end of 2023 from 0.62% at the end of 2022. However, CCB’s NPL / loans overdue more than 3-month gradually increased from 138% at the end of 2013 to 178% at the end of 2023, which reflects the Bank’s more and more stringent NPL recognition. The Bank’s financial investment amounted to RMB9.64 trillion at the end of 2023, up by 12.8%, 86.5% of which were bonds issued by the government, central bank, and policy banks with minimal credit risk.
Above-average profitability: We forecast CCB to maintain above-average profitability underpinned by a satisfactory Net Interest Margin (NIM) owing to outstanding market franchise, stable fee income contribution and effective cost control. The return on average shareholder’s equity (ROAE) and average assets (ROAA) were 11.56% and 0.91%, respectively, compared favorably to the sector average of 8.93% and 0.70% at the end of 2023, ranking top two among the LSOB.
In 2023, CCB’s NIM slid down to 1.70% from 2.02% in 2022, as the average yield of loans was down to 3.82% from 4.17% due to cuts of central bank’s loan prime rates (LPR) amid a government call of lowering cost for real economy growth. Meanwhile, the average cost of deposits edged up to 1.77% in 2023 from 1.73% in 2022, driven by intensified competition in the deposit market and time-deposit migration. Although CCB’s NIM narrowed 32 bps in 2023, it still ranked second among the LSOB and continued to outperform the industry average. Moreover, the bank’s net fee income contributed to around 15% of operating income. The bank’s credit cost gradually declined to RMB 136.8 billion from the peak of RMB 193.5 billion in 2020, due to the easing provision pressure driven by the bank’s asset quality improvement.
Credit Weakness
Susceptible to Economic Volatilities: As a major state-owned bank domestically, CCB will continue to be subject to a high degree of market volatilities due to its role of serving the real economy and stabilizing the financial system. CCB’s loan portfolio tracks closely with that of the broader market, with large exposure to leasing and commercial services, transportation, and manufacturing representing 10.27%, 9.37%, and 8.69% of total loans at the end of 2023, respectively.
The complex and challenging international and domestic situation is likely to continue to put pressure on CCB’s asset quality and earnings. The intensified international geopolitical conflicts, macro-policy uncertainty in developed economies, and risk events at Silicon Valley Bank and Credit Suisse 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: Ratings mentioned in this press release are unsolicited ratings.
ANALYSTS CONTACT
Primary Analyst
Tingting Qiao
+852 3615 8339
tingting.qiao@cspi-ratings.com
Secondary Analyst
Stella Shi
+86 755 8287 2106
Committee Chair
Larissa Wu
+852 3615 8317
MEDIA CONTACT
Rating Services Contact
Allen Wei
+852 3615 8324
allen.wei@cspi-ratings.com
Date of Relevant Rating Committee: 14 June 2024
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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