BEIJING, July 27, 2021 - S&P Global (China) Ratings has assigned its AAAspc rating to Bank of China Limited (“BOC”), and the outlook is stable. In addition, S&P Global (China) Ratings has assigned its AAAspc rating to BOC’s 2021 Financial Bonds (Series 2).
We assess BOC’s stand-alone credit profile (“SACP”) as “aaspc”, five notches higher than the “bbb+” anchor we typically apply to a commercial bank in China. This reflects BOC’s status as China’s fourth largest commercial bank by asset size and its very strong franchise in the Chinese Mainland and Hong Kong, which makes the bank more internationally diversified. Meanwhile, its large and sticky deposit bases in China makes its funding and liquidity profile very strong. In general, we believe “aaspc” is the highest SACP that commercial banks could reach in S&P Global (China) Ratings.
The issuer credit rating (“ICR”) of “AAAspc” incorporates a two-notch uplift from our assessment of its SACP of “aaspc”, reflecting the extremely high likelihood of central government support in times of stress.
BOC is the fourth-largest commercial bank in China. As of the end of 2020, it represented 9.7% and 7.7% of the commercial bank market share of loans and deposits in China, respectively. Compared to other mega banks, BOC is more internationally diversified. Besides the Chinese mainland, it operated in 61 countries and regions as of the end of 2020. Compared to its peers, the bank has a leading position in cross-border custodian business, panda bond and off-shore bond underwriting, foreign exchange trading and cross-border RMB settlement.
BOC has a very stable funding structure thanks to its large and sticky corporate and retail deposit bases in China. As of the end of 2020, 76% of its liabilities were customer deposits, and 45% of its deposits were retail deposits. It also benefits from “flight to quality” when market liquidity tightens.
We expect BOC`s capital adequacy to remain adequate. As of the end of 2020, its reported regulatory tier-1 capital adequacy ratio was 13.19%. We expect BOC to increase its capitalization as it is a globally systemically important bank (“G-SIB”) and subject to TLAC requirements.
BOC’s asset quality has remained stable during the pandemic. Its average non-performing loan (“NPL”) ratio from 2018 to 2020 was 1.42%, consistent with the mega bank weighted average and 43 bps lower than the industry average. The asset quality performance of BOC's portfolio outside the Chinese mainland, particularly its Hong Kong portfolio, is better than its domestic loan book. As of the end of 2020, its loans outside the Chinese mainland accounted for 19% of its gross loans and the impaired loan ratio was 0.64%, much lower than BOC’s overall impaired loan ratio of 1.46%.
In our opinion, as the fourth largest commercial bank in China by asset size, BOC is of critical importance to the central government for its role in maintaining the country’s financial stability. BOC is of critical importance to the government in its execution of major economic and financial policy initiatives. As of the end of 2020, the central government held about 64% of the bank’s shares through Central Huijin Investment Ltd.
We have equalized the credit rating of Bank of China Limited Financial Bonds (Series 2) with the issuer credit rating on BOC since it is senior unsecured debt of the bank. The principal amount of this bond is RMB 30 billion and it has a 3-year term. The repayment sequence of the bond`s principal and interest are equal to the general liabilities of commercial banks.
Issuer Credit Rating Snapshot：
Anchor：bbb+
Business Position：+3
Capital and Earnings：0
Risk Position：0
Funding and Liquidity：+2
Stand-alone Credit Profile：aaspc
Government Support：+2
Issuer Credit Rating：AAAspc
Outlook/CreditWatch：Stable
Related Research & Commentary:
Credit Rating Report: Bank of China Limited, July 15, 2021.
Related Methodology:
S&P Global (China) Ratings Financial Institutions Methodology.
General Considerations on Rating Modifiers And Relative Ranking.
Media Contacts：
Sharon Tang, Beijing, (86)10-6569-2988; sharon.tang@spgchinaratings.cn
Analyst Contacts:
Longtai Chen，Beijing；longtai.chen@spgchinaratings.cn
Xiaochen Luan, CFA， FRM, Beijing; collins.luan@spgchinaratings.cn
Zheng Li, FRM, Beijing; zheng.li@spgchinaratings.cn