BEIJING, October 9, 2020 - S&P Global (China) Ratings today affirmed its issuer credit rating on Postal Savings Bank of China Co., Ltd. (“PSBC”) at “AAA_spc”. The Outlook is stable.

We expect PSBC to maintain its adequate capital position for the foreseeable future thanks to its good asset quality. Due to its issuance of perpetual bonds, its capital adequacy ratios improved in the first half of 2020. Its reported regulatory capital adequacy ratio was 13.97% as of the end of June 2020, comfortably above the minimum regulatory requirement of 10.5%.

PSBC’s profitability has seen a mild drop due to the impact of COVID-19 in the first half of 2020. However, considering its good asset quality, adequate reserve buffer, and the normalization of the central bank’s monetary policy operations, we expect PSBC’s future credit costs and net interest margin (“NIM”) pressure to be controllable. In 2019, the bank’s return on equity was 13.1%, higher than the average of 12.3% for the five other mega banks. Largely because of the narrowing NIM in the first half of 2020, its annualized ROE dropped to 12.7%, 3.7 percentage point lowered than the same period last year.

Although COVID-19 has had a major impact on the economy, PSBC continues to outperform the industry in terms of asset quality. As of the end of June 2020, its reported NPL ratio was 0.89%, up by 3 basis points from the end of 2019; its special mention loan (“SML”) ratio was 0.53%, 13 basis points lower compared to the end of 2019. We expect the asset quality impact of the COVID-19 pandemic to further manifest in the second half of this year and into 2021. Its combined NPL + SML ratio of 1.4% was significantly lower than the industry average of 4.7% and the average of 3.7% for the five other mega banks as of the end of June 2020.

The bank’s credit exposure to micro and small enterprises (“MSE”), which are more vulnerable to COVID-19, may see more asset quality pressure. As of the end of June 2020, PSBC’s MSE loan portfolio accounted for 13.8% of its loan book and its MSE NPL ratio was 2.09%.

Another important reason for PSBC’s good asset quality metrics is its large lending exposure to retail customers (particularly mortgage customers) and large enterprises with high credit quality. The asset quality of these loan exposures has remained stable during the pandemic.

PSBC is one of the six state-owned mega banks in China. It is a leading retail bank in China and has a very important role in providing banking access to rural and remote areas in China by leveraging its extensive network. As of the end of June 2020, it reported total assets of 11 trillion RMB, ranking fifth among China’s commercial banks. PSBC is indirectly owned by the central government through its parent China Post Group, which is 100% owned by China’s Ministry of Finance. China Post Group owned 65% of the bank as of the end of June 2020.

We assess PSBC’s stand-alone credit profile (“SACP”) as “aa_spc”, 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, solid asset quality, and very stable funding structure dominated by retail deposits.

The “AAA_spc” issuer credit rating incorporates a two-notch uplift from our assessment of PSBC’s SACP of “aa_spc”, reflecting the extremely high likelihood of receiving government support in time of need.