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Bank Of China Ltd Class H 03988

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China’s Easing Improves Credit Demand and Stabilizes Credit Quality Outlooks; NIM Impact Manageable

Iris Tan, CFA Senior Equity Analyst

Analyst Note

| Iris Tan, CFA |

Following The People's Bank of China's 10-basis-point cut to the borrowing rates of one-year medium-term lending facility, or MLF, and the seven-day reverse repurchase agreements on Jan. 17, we revisited potential impacts on Chinese banks. We previously expected two to three rounds of 5-basis-point cuts to the Loan Prime Rate, or LPR, in the first half--the 10-basis-point MLF rate cut is expected to translate to a 10-basis point cut to one-year LPR and a 5-basis-point cut to five-year LPR on Jan. 20. This indicated downward pressures on NIM are more front-loaded than we previously expected. In reference to the previous rate cut cycle, our models now factor in a total of 25- and 10-basis-point cuts to one-year and five-year LPRs, respectively, in 2022. We also see policy tools to ease the pressure, including a reserve requirement rate cut, RRR, a change in the deposit rate-setting method, and lower interbank rates as results of the key policy rate cut.

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Company Profile

Business Description

BOC is headquartered in Beijing and was founded in 1912. In the past, the bank has evolved as a central bank, international exchange bank, and state-owned bank specializing in foreign trade business. BOC was listed on the Hong Kong and Shanghai stock exchanges in 2006. It provides a comprehensive range of financial services to customers across greater China and overseas. Central Huijin, a Chinese state-owned investment company and BOC's largest shareholder, controls 68%.

1 Fuxingmen Nei Dajie
Beijing, 100818, China, People's Republic of
T +86 1066596688
Sector Financial Services
Industry Banks - Diversified
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 305,594