New bad loan formation remains a key risk for China Everbright Bank

The bank has adequate buffers, with reserves covering 174.4% of its NPLs.

Formation of new bad loans remains a risk for China Everbright Bank, but capitalisation should remain sufficient, and profitability is likely to be steady.

The bank is expected to maintain steady asset quality, capitalisation, profitability, and liquidity over the next 12-18 months, Moody’s Ratings said.

Formation of new nonperforming loans (NPLs) remains a risk to CEB's asset quality because of its unseasoned risks in financing China's economic transition and nonlending credit risks from its investment portfolio, the ratings agency warned.

Overall loan growth slowed to 3.9% in 2024 from 6% in 2023, whilst green loans and inclusive financing loans grew at 41% and 15% in 2024, respectively.

“Nonetheless, we do not expect a significant deterioration in the bank's asset quality over the next 12-18 months because of its strategy of steady growth and adequate buffers that the bank has built up,” Moody’s said.

Loan loss reserves covered 174.4% of the bank’s NPLs as of 312 March 2025. The NPL ratio was also stable for the past four years, at 1.25%.

Capitalisation should remain sufficient through 2026 thanks to slow asset growth, it added.

Profitability, measured by return on average asset (ROAA), is likely to stabilise to around the 2024 level of 0.6% over the next 12-18 months.

Narrowing of the bank's net interest margin (NIM) is likely to slow down as deposit costs decline, underpinning net interest income which accounted for 71.3% of total revenues