Broker: OCBC Investment Research
Date of Report: 5 August 2025

China CITIC Bank: Navigating Economic Headwinds with Sound Risk Controls and Asset Quality

Investment Summary and Recommendation

China CITIC Bank (CNCB) is in a transformative phase, having successfully addressed most of its legacy bad debts through aggressive provisions and write-offs. The bank’s efforts to deleverage have resulted in reduced asset/equity leverage and minimized shadow banking exposure. Despite these improvements, the outlook for core earnings remains muted, with marginal growth prospects and persistent headwinds in China’s macroeconomic landscape.
Key Highlights:

• Rating: BUY
• Last Close: CNY 8.43
• Fair Value Estimate: CNY 9.55
• Market Cap: CNY 443.8 billion
• Ticker: 601998.SS

Core Earnings Outlook: Marginal Growth Amid Pressures

• Projected PATMI growth for FY25 stands at a modest 0.6%, reflecting ongoing pressure on net interest margins (NIM) and non-interest income.
• Potential for increased credit impairment losses, despite a year-on-year decline in 1Q25 compared to 1Q24.
• In 1Q25, CNCB reported a 1.7% year-on-year increase in PATMI to CNY 19.5 billion.
• Annualized return on equity (ROE) for 1Q25 was 11.40%, down 0.9 percentage points year-on-year.
• Strategic focus on diversifying corporate lending and strengthening risk controls in retail banking, real estate, and local government debts.

Macroeconomic and Asset Quality Analysis

The macroeconomic environment in China remains soft, with monetary policy expected to be accommodative to cushion growth against external shocks such as US tariffs. However, significant rate cuts by the People’s Bank of China (PBoC) are unlikely, as they would risk further weakening of the CNY against the USD.

• Overall outstanding CNY loan growth moderated to 7.1% year-on-year in June 2025, consistent with May but down from 8.9% in 2024 and 11.2% in 2023.
• New CNY loans rose 5.2% year-on-year in June 2025, reversing two months of sharp declines.
• Average mortgage rates in 1Q25 edged up 4bps quarter-on-quarter to 3.13%, but remain 101bps lower than a year ago, sustaining concerns over NIM compression.
• Residential property sector remains under pressure: transaction values fell 5.2% year-on-year in 1H25, and prices continued to decline in major cities as of June 2025.

Asset quality at CNCB remains resilient:

• Non-performing loan (NPL) ratio held steady quarter-on-quarter at 1.16% as of 31 March 2025.
• Allowance coverage ratio declined slightly by 2.3 percentage points quarter-on-quarter to 207.1%, but remains robust.
• CET1 ratio stood at 9.5%, above the regulatory minimum of 8% despite a minor quarterly decline.

Valuation Update and Financial Projections

CNCB’s fair value estimate has been revised upward from CNY 9.20 to CNY 9.55, applying an adjusted price-to-book (P/B) multiple of 0.69x to the FY26 book value per share forecast.

Peer Comparison: How CNCB Stacks Up

ESG Improvements and Governance

CNCB’s ESG rating was upgraded in July 2024 and has since been maintained at that higher level. Corporate governance has advanced to be on par with global peers:

• Board is now majority independent.
• Fully independent pay and audit committees enhance investor protection.
• Retail banking operations lead peers in consumer financial safety and workforce management, including partnerships with universities for staff training.
• Data security framework is robust, featuring strong access control protocols to safeguard personal data.

Catalysts and Investment Risks

Potential Catalysts:

• Stronger-than-expected economic growth could improve loan pricing power.
• Further improvements in asset quality and lower-than-anticipated non-performing loan formation.
• Recovery in fee income surpassing market expectations.

Key Risks:

• Escalating geopolitical tensions affecting consumer and corporate sentiment.
• Stiff competition from other financial institutions and potential loss of deposit market share.
• Increased regulatory scrutiny on wealth management products, an area where CNCB has significant exposure.
• Greater-than-expected NIM compression due to market forces.

Company Overview and Revenue Breakdown

China CITIC Bank, established in 1987 and a core subsidiary of the CITIC Group, is one of China’s leading commercial banks. With a strong presence in high-growth provinces and cities, the bank provides both corporate and personal banking services.
FY24 Net Revenue Breakdown:

• Corporate banking: 44.7%
• Personal banking: 40.2%
• Treasury business: 15.0%
• Others: 0.2%

By Geography:

• China: 95.3%
• Rest of the World: 4.7%

Key Financial Metrics:

• Net Interest Margin (FY24): 1.8%
• Non-performing Loan Ratio (FY24): 1.2%

Detailed Financials and Ratios

Conclusion: Investment Outlook for China CITIC Bank

China CITIC Bank stands out for its disciplined risk management, improving governance, and resilience in asset quality, even as it faces a challenging economic environment and subdued earnings outlook. The bank’s moderate valuation, strong capital ratios, and above-average dividend yield position it as a stable choice for investors seeking exposure to China’s financial sector. However, investors should monitor ongoing macroeconomic developments, regulatory changes, and competitive dynamics that could impact future profitability and growth.