BEIJING, January 19, 2021 - S&P Global (China) Ratings has assigned its AAAspc rating to China Construction Bank Corporation(“CCB”)， and the outlook is stable. In addition, S&P Global (China) Ratings has assigned its AAAspc rating to CCB’s 2021 Special Financial Bond for Micro and Small Enterprise Lending.
We assess CCB’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 is to reflect our view of the bank’s very strong business franchise as the second largest bank in China and its very strong funding and liquidity profile built on its massive deposit base.
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 government support.
As China’s second largest bank, CCB has one of the most extensive domestic banking networks in China, operating over 14,000 branches within China and 33 branches overseas. As of the end of 2019, it had 11.56% and 9.27% market share of loans and deposits, respectively. CCB has a balanced and strong business franchise in corporate and retail banking with a strong edge in infrastructure finance and mortgage lending.
CCB has one of the largest deposit bases among Chinese banks and it has limited use of wholesale funding. As of the end of 2019, 79% of its liabilities were customer deposits, and its use of wholesale funding represented about 18% of its total liabilities, lower than the industry average. It also benefits from “flight to quality” when market liquidity tightens. The bank’s daily average liquidity coverage ratio was 155% in the fourth quarter of 2019, much higher than the minimum regulatory requirement of 100%.
CCB has adequate capitalization and healthy profitability. CCB has the highest regulatory capital adequacy ratios among its mega bank peers. As of the end of June 2020, its reported regulatory tier-1 capital adequacy ratio was 13.88%, 1.10 percentage points higher than the mega bank average and 2.27 percentage points higher than the industry average. Given its status as a global systematically important bank (G-SIB), we expect it to continue to strengthen its capitalization.
The risk profile of the bank’s loan portfolio is consistent with the industry average. Its asset quality has come under pressure from COVID-19. As of the end of June 2020, CCB’s NPL ratio was 1.49%, only 7 bps higher than the end of 2019. We view that the stable asset quality in the first half of 2020 was partially attributable to the lagging effect of NPL recognition, fast growth of new lending and writing off efforts, while we recognize some uncertainty remains over the rapidly increasing MSE loans, the performance of which depends on both the lending standards of the bank and the progress of the economic recovery.
We believe that CCB is extremely likely to receive support from the central government in times of need, considering its status as a state-owned mega bank and its important role in maintaining financial stability in China and providing financing to China’s infrastructure development and other important government initiatives. As of the end of 2019, 57% of CCB’s shares were controlled by Central Huijin Investment Ltd.
We have equalized the credit rating of the financial bond with the ICR of CCB. This bond is issued to grow CCB’s micro and small enterprise (“MSE”) lending business. The principal amount of this bond is RMB 20 billion, and its term is 3 years. The payment obligation of this financial bond is ranked equally with all the general liabilities of the bank that has no liens on, and prior to equity capital settlement of CCB.
Issuer Credit Rating Snapshot：
Capital and Earnings：0
Funding and Liquidity：+2
Stand-alone Credit Profile：aaspc
Issuer Credit Rating：AAAspc
Related Research & Commentary:
Credit Rating Report: China Construction Bank Corporation, Sep 18, 2020.
Issue Rating Notice: 2020 China Construction Bank Corporation Special Financial Bond for Micro and Small Enterprise Lending Rated “AAAspc”, Jan 11, 2021.
Related Methodology and Research:
S&P Global (China) Ratings Financial Institutions Methodology.
General Considerations on Rating Modifiers And Relative Ranking.
Commentary: Understanding S&P Global (China) Ratings Financial Institutions Methodology.
Commentary: Understanding S&P Global (China) Ratings Approach to Support.
Commentary: Understanding S&P Global (China) Ratings General Considerations on Rating Modifiers and Relative Ranking Methodology.
Sharon Tang, Beijing, (86)10-6569-2988; firstname.lastname@example.org
Yifu Wang, CFA，CPA, Beijing; email@example.com
Cui Cong, Beijing; firstname.lastname@example.org
Xuefei Zou, CPA, Beijing; email@example.com
(Note: This document is prepared in both English and Chinese. The English translation is for reference only, and the Chinese version will prevail in the event of any inconsistency between the English version and the Chinese version.)