HONG KONG, 8 August 2024. CSPI Ratings has affirmed Industrial and Commercial Bank of China’s (ICBC or the Bank) 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 leading market franchise, robust capitalization, resilient asset quality, and strong funding and liquidity. It also takes into account ICBC’s susceptibility to market volatility. In addition, we believe that the Chinese government (‘AA’/Stable) has an extremely strong willingness to support ICBC in times of need, considering the state ownership, the bank’s status as the largest state-owned bank in China, and its systemic importance to the financial system.
The Stable Outlook reflects our view that the Bank 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 foreign-currency 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 foreign-currency LTICR of the sovereign is upgraded and/or if the government’s willingness to support further strengthens.
KEY RATING RATIONALE
Credit Strengths
Extremely strong sovereign support: We believe that the Chinese government’s willingness to support ICBC in times of need is extremely strong, given the Bank’s 69.4% state ownership directly under Central Huijin Investment Ltd., the Social Security Fund, and the Ministry of Finance, its quasi-policy role in government initiatives, and its systemic importance as the largest state-owned bank in China. ICBC’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 manufacturing and strategic emerging industries, as well as promote economic development and maintain financial system stability.
Leading market franchise: We expect that ICBC will continue to maintain its strong business franchise as the largest bank in the world by total assets and loan balance, given its solid customer base, extensive service channels, and diversified business structure. This warrants its status as a global systemically important bank (G-SIBs) and a domestic systemically important bank (D-SIBs) in China. In recent years, the Bank has had the largest domestic deposit market share of around 10-11% owing to its high-quality customer base. In addition, ICBC provides a wide range of products and services, covering funds, leasing, insurance, wealth management, financial technology, and overseas investment banking, serving more than 12 million corporate customers and 740 million personal customers all over the world.
Robust capitalization: ICBC will continuously maintain its capital profile at a relatively higher level, thanks to its good internal capital generation and capital market access. Despite the bank’s capitalization showing a slight decrease due to a higher risk-weighted asset growth rate of 10.9% during 2023, we see that ICBC’s capitalization metrics have been consistently higher than the state-owned peers’, with a common equity tier 1 (CET1) capital ratio of 13.7%, a tier 1 capital ratio of 15.2%, and a total capital adequacy ratio (CAR) of 19.1% at the end of 2023. In 2023, ICBC collectively issued RMB110 billion in Tier-2 capital bonds to replenish the Bank’s capital. In addition, as one of the G-SIBs, the bank successfully issued RMB40 billion total loss-absorbing capacity non-capital bonds in May 2024, further enhancing its total loss-absorbing capacity.
Resilient asset quality: ICBC’s asset quality will remain stable in our projection over the next 12-18 months, in view of the Bank’s continued non-performing loan (NPL) resolution and selective lending strategy. ICBC’s overall NPL ratio improved to 1.36% in 2023 from 1.38% in 2022, compared favorably to the sector average of 1.59%. As of the end of 2023, the Bank’s direct exposure to property developers stayed modest at 5.1% of corporate loans, and the NPL ratio of real estate decreased to 5.37% from 6.14% in 2022. We believe the Bank could manage the credit risk associated with the real estate industry. The Bank’s percentage of loans overdue for more than 3 months was 0.86% in 2023. The special-mention loan (SML) ratios have gradually declined to 1.85% in 2023 from 2.92% in 2018; the SML migration ratio also fell to 18.61% in 2023. Owing to ICBC’s prudent provision policy, the bank’s provision coverage ratio reached a new high of 214.0% at the end of 2023.
ICBC’s investment assets increased to RMB11.8 trillion at the end of 2023, up by 12.5% from 2022. Bond investment accounted for 95.6% of the investment portfolio, including 84.2% in bonds with minimal credit risk issued by the government, central bank, or policy banks.
Strong funding and liquidity: We believe that ICBC will maintain its good funding structure, given its vast retail deposit base. Customer deposits are the Bank’s primary source of funding. As of the end of 2023, 81.9% of total liabilities were customer deposits, which amounted to RMB 33.5 trillion. Its retail deposits increased by 13.9% in 2023, and its proportion to total deposits has been rising gradually. The Bank also has abundant liquidity, with a liquidity coverage ratio of 122.0% and a net stable funding ratio of 130.6% at the end of 2023, both of which were much higher than the minimum regulatory requirement of 100%.
We anticipate that ICBC 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 Weakness
Susceptible to Economic Volatilities: As the largest bank domestically, ICBC will continue to be sensitive to operating environment volatilities due to its role as a state-owned bank serving the real economy, which may require credit exposures of weaker quality and challenge the Bank’s asset quality under stress scenarios. ICBC’s loan portfolio tracks closely with that of the broader market, with large exposure to transportation, manufacturing, and leasing and commercial services representing 24.1%, 15.8%, and 15.5% of corporate loans at the end of 2023, respectively.
The complex and challenging international and domestic situation is likely to continue to put pressure on ICBC’s asset quality and earnings. The intensified international geopolitical conflicts, macro-policy uncertainty in 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 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: 31 July 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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