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Agricultural Bank of China Ltd Class H 01288

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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

Headquartered in Beijing, ABC evolved from a state-owned specialized bank to a state-controlled commercial bank. It listed on the Hong Kong and Shanghai Stock Exchanges in 2010. ABC operates more than 20,000-branch network in China, providing corporate and retail banking products and services, and carries out treasury operations for its own accounts or for its customers. Shareholders Central Huijin, China's state-owned investment company, and the Ministry of Finance own 40% and 35%, respectively. Corporate banking, retail banking, and wholesale banking accounted for 42%, 39%, and 12% of profit before tax, in 2020, respectively. Rural banking and urban banking contributed to nearly 40% of total profit before tax in 2020.

50 Connaught Road Central, 25th Floor, Agricultural Bank of China Tower
Hong Kong, Hong Kong
Sector Financial Services
Industry Banks - Diversified
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type
Employees 454,081