BoCom to prioritize risk control, moderate loan book growth: S&P

Its loan book is projected to grow slower in 2024-2026.

The Bank of Communications Co. Ltd. (BoCom) is expected to maintain a “measured appetite” for growth amidst economic uncertainty for China.

The Chinese bank is expected to prioritize risk control amidst economic uncertainty in its home country, said S&P Global Ratings.

“This is likely to have a net effect of moderating its growth appetite in the near term,” S&P said.

BoCom’s loan book is projected to grow 7% to 7.5% per year between 2024 and 2026, slower than the 9% to 11% growth per year in 2022 to 2023.

BoCom should benefit from a diversified portfolio amidst pockets of credit risk over the next two years.

“This should help the bank mitigate asset quality challenges from economically vulnerable sectors, including the property sector, local government financing vehicles, and certain consumer lending,” S&P said.

Meanwhile, plans to recapitalize six megabanks may enhance BoCom’s capital cushion.

“The bank needs capital to implement government policies. A capital injection will likely give BoCom incremental financial flexibility to support policy priorities, when needed. We do not include a capital injection in our base-case assumptions given uncertainty over implementation,” S&P said.

However, a margin squeeze will likely continue to strain BoCom's ability to generate capital.

BoCom’s return on average assets is expected to hover at 0.5% to 0.6% over the next two years, which will be at the lower end of its peer range.

“BoCom's profitability faces pressure from mortgage repricing, lending rate cuts, and an elevated deposit cost base,” S&P said.

“We expect the bank to proactively manage its funding costs, but this is unlikely to offset the downward pressure on its net interest margin,” it added.