Bank of Communications Ltd. And Subsidiaries

BoCom needs a higher capital buffer to implement government policies, given strains on NIM and profitability. China's recapitalization plans may enhance the bank's capital cushion and provide financial flexibility to support policy priorities. We estimate BoCom's return on average assets (ROAA) will likely stay at 0.5%-0.6% in the next two years--the lower end of its peer range. Proactive risk monitoring and loan diversification will help mitigate asset quality challenges from economically vulnerable sectors. These include the property sector, local government financing vehicles (LGFVs), and certain consumer lending. We estimate BoCom's NPA coverage will likely remain above 60% and comparable to peers. The stable outlook on BoCom reflects our expectation that the bank will maintain its strong business position, adequate capitalization,

...We expect Bank of Communications Co. Ltd.'s (BoCom) to maintain an adequate capital buffer on measured growth. Prioritizing risk control amid economic uncertainty is likely to moderate the bank's annual loan growth to 7%-8% in 2024-2026, from 9%-11% in 2022-2023. We project BoCom will maintain a risk-adjusted capital (RAC) ratio above 7% by 2026. This does not consider potential capital injection from the government. BoCom needs a higher capital buffer to implement government policies, given strains on NIM and profitability. China's recapitalization plans may enhance the bank's capital cushion and provide financial flexibility to support policy priorities. We estimate BoCom's return on average assets (ROAA) will likely stay at 0.5%-0.6% in the next two years--the lower end of its peer range. BoCom's asset quality will remain manageable despite pockets of credit risk. We estimate the bank's ratio of nonperforming assets (NPA) at 4.1%-4.4% of total loans in the next two years, lower than...

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