Update: Bank of Communications Ltd. And Subsidiaries

At the same time, BoCom needs capital to sustain its asset growth. We estimate the bank will expand its loan book at a high-single-digit percentage rate to support China's economic recovery. This could lower its risk-adjusted capital (RAC) ratio from 7.6% as of end-2023. Partly mitigating the pressure is the bank's record of capital instrument issuance. BoCom had an outstanding Chinese renminbi (RMB) 175 billion of Tier-1 hybrid capital instruments in end-March 2024, up from about RMB60 billion in 2018. We view these instruments as having intermediate equity content in our RAC estimates. We anticipate BoCom will maintain an adequate cushion against its problematic assets. Its provision coverage of stage-2 and stage-3 loans was stable at 60% as of the

...Bank of Communications Co. Ltd.'s (BoCom) national franchise and digital integration will support its long-term growth. We expect the bank to tighten its business position in the Yangtze River Delta region through digitalization. This will continue to drive its growth in the economically vibrant region. The Yangtze River Delta contributed 28% of BoCom's loans and 47.7% of its profit before tax in 2023. The bank's strength in Yangtze River Delta region together with its established franchise as a megabank in China will underpin its strong business position. Strains on profitability could deplete BoCom's capital buffer. The bank's below-average NIM and lingering pressure on lending rates, partly due to concessions to policy-favored sectors, could continue to weigh on its profitability over the next two years. BoCom's annualized return on total assets (ROAA) was 0.71% in the first quarter of 2024, down 4 basis points (bps) year on year, and slightly below the industry average of 0.74%....

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