...August 28, 2023 HONG KONG (S&P Global Ratings) Aug. 28, 2023--Bank of Communications Co. Ltd.'s (BoCom) capital buffer is set to erode due to strain on profitability and high loan growth. Net profit for the Shanghai-based megabank grew 4.5% year on year in the first half of 2023, versus the sector average of 2.6%. But its annualized return on assets deteriorated to 0.69% from 0.73% in the same period in 2022, mainly due to a contraction in net interest margin (NIM). NIM pressure will continue to constrain the profitability of BoCom (A-/Stable/A-2). The bank's deposit cost increased to 2.35% in the first half of 2023 from 2.14% in the year-ago period, mainly due to a higher proportion of time deposits. Meanwhile, interest rate cuts and the Chinese government's initiatives for banks to support the real economy will add to the margin strain. We estimate BoCom's NIM stood at 1.29% in the second quarter of 2023, lower than the megabanks' average of 1.67%, largely due to BoCom's much smaller...
