Broker: OCBC Investment Research
Date of Report: 27 June 2025

China Construction Bank and Peers: Why CCB Remains the Top Pick for Yield, Stability, and Growth

Overview: Navigating China’s Banking Sector in 2025

In 2025, China’s banking landscape is marked by macroeconomic headwinds, persistent net interest margin (NIM) pressures, and a policy-driven push for long-term capital in equity markets. Among the sector’s giants, China Construction Bank (CCB) stands out as a preferred investment for its strong balance sheet, stable earnings, and attractive dividend yield. This comprehensive analysis examines CCB in detail, alongside its leading peers, to help investors make informed decisions in the current market environment.

Investment Thesis: Quality and Yield at the Forefront

– CCB is favored for its robust capital position and lower risk profile, offering resilience against macroeconomic uncertainties. – Defensive, high-dividend stocks like Chinese banks are increasingly attractive due to a lower-for-longer interest rate environment. – Policymakers are encouraging participation from state-owned insurers and mutual funds, further supporting demand for quality yield stocks. – A-share Chinese state-owned banks currently trade at a sizable yield spread above the 10-year Chinese government bond (CGB), with potential for further compression.

Dividend Yield: A Compelling Proposition

– CCB trades at a 0.65x forward price-to-book (P/B) and offers a 4.3% dividend yield for 2025. – If the yield spread versus the 10Y CGB narrows closer to the historical average, dividend yields for A-share SOE banks could compress to 3.2-3.3%. – CCB and Industrial and Commercial Bank of China (ICBC) are highlighted for superior capital positions, minimizing dilution risks when recapitalization is required. – The fair value for CCB is set at CNY 10.90, implying a valuation multiple of 0.75x forward P/B and a 3.7% 2025 dividend yield.

Net Interest Margin Pressures: Outlook and Trends

– NIM for CCB declined 7bps quarter-on-quarter to 1.41% in 1Q25, a steeper drop than peers due to a larger mortgage portfolio and concentrated mortgage repricing. – Net interest income (NII) fell 5% QoQ, though loan growth was resilient at 5% QoQ (8% YoY), driven by strong corporate loan demand. – Deposit growth accelerated to 6% QoQ (4% YoY), with net fee income down 5% YoY but other non-interest income up 5% YoY. – Looking forward, 2Q25 is expected to see narrowing declines in NIM and NII, supported by improving non-interest income and a supportive asymmetric rate cut in May.

Stable Asset Quality: CCB’s Defensive Strength

– Non-performing loan (NPL) ratio edged down by 1bp to 1.33% in 1Q25. – Credit cost dropped 6bps YoY to 73bps. – NPL coverage remained stable at 237%. – Common Equity Tier-1 (CET1) ratio dipped 50bps QoQ to 14.0% due to RWA increases and soft organic capital generation. – Management expects retail segment NPLs to remain stable, even amid macro uncertainties.

ESG Developments: Leading on Consumer Safety and Ethics

– CCB has improved its consumer financial safety framework, surpassing peers with comprehensive staff training and robust loan modification plans for distressed borrowers. – Customer complaints declined by 12% between 2020–23, reflecting better performance. – The bank leads global peers in business ethics, with a detailed anti-corruption policy and advanced privacy management. – CCB’s IT system is ISO 27001 certified and undergoes independent audits. – The environmental intensity of CCB’s loan book is medium; the bank employs escalation procedures for enhanced ESG due diligence. – Corporate governance is average for global standards, with a majority independent board but CEO and executive chair dual roles, and a controlling shareholder with 57.2% voting rights.

Potential Catalysts and Risks

Catalysts:

• Less severe slowdown in macroeconomic growth, especially in rural areas
• Further improvements in asset quality
• Stronger-than-expected stabilization in NIM trends

Risks:

• Weaker rural economic growth
• Increased competition and potential loss of deposit share
• Higher operating and funding costs
• Further fee income contraction

Valuation Analysis: Comparing the Big Four Chinese Banks

Company Overview: China Construction Bank (CCB)

– CCB is China’s second-largest commercial bank and a core member of the Big-4 SOE banks. – Listed in Hong Kong since 2005, CCB operates over 14,000 branches with more than 300,000 employees. – Its extensive network provides a competitive edge in both retail and corporate banking nationwide.

Financial Performance Summary

Profitability and Margins (2020–2024)

• Return on Common Equity declined from 12.2% in 2020 to 10.7% in 2024
• Return on Assets at 0.9% in 2024
• Operating Margin improved to 50.5% in 2024
• Pretax Margin at 27.2% in 2024
• Dividend Payout Ratio stable at ~30.7%

Conclusion: CCB Stands Out Amid Challenging Backdrop

China Construction Bank maintains its status as the preferred play among Chinese banks for 2025, thanks to its strong capital base, stable asset quality, resilient earnings, and industry-leading dividend yield. While sector-wide challenges like NIM compression and macro uncertainties persist, CCB’s defensive qualities, robust governance, and ongoing ESG improvements make it a compelling choice for investors seeking yield and stability in China’s financial sector.

Disclosure

– The research and recommendations within this article are based on the independent analysis of OCBC Investment Research as of 27 June 2025. – The report reflects the analysts’ unbiased views and is intended for informational purposes for financial audiences.