China Bohai Bank Co. Ltd.

Pandemic-era forborne loans have declined, with borrowers in the micro and small enterprises (MSEs) having resumed servicing such loans. However, asset quality strains from the property sector will likely continue, given the uncertain industry prospects. Lower profitability constrains CBHB's capitalization. For example, its RAC ratio is susceptible to falling below 5% due to unexpected rise in credit losses. We forecast its annual return on average assets (ROAA) will fall to about 0.25% over 2024-2026, from 0.76% in 2019, and lower than our sector forecast of about 0.60%. The stable outlook on CBHB reflects our view that the bank's lower risk appetite and tightening risk control will improve the bank's asset quality to a level that is comparable to the sector.

...Lower risk appetite and tighter internal control is helping China Bohai Bank Co. Ltd. (CBHB) to improve its asset quality. The bank is likely to maintain slower asset growth than the sector. It has also taken meaningful steps to compress its high-risk portfolio, such as internet loans. Pandemic-era forborne loans have declined, with borrowers in the micro and small enterprises (MSEs) having resumed servicing such loans. However, asset quality strains from the property sector will likely continue, given the uncertain industry prospects. CBHB's profitability remains challenged by its geographical concentration in north and northeast China and LGFV exposure. Economic restructuring to shed overcapacity in traditional heavy industries in some of these regions and debt restructuring of highly leveraged LGFVs will lower margins for the bank. Lower profitability constrains CBHB's capitalization. For example, its RAC ratio is susceptible to falling below 5% due...

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