The Chinese banks have delivered strong performance over the past year, with the Big 5 banks (BOC, CCB, ICBC, ABC, BoCoM) also achieving positive 3-year price performance, reversing a prolonged period of negative price performance. The exception is China Merchants Bank, whose 3-year price performance remains in the red.
| Bank | Ticker | 1 Year price performance (%) | 3 Year price performance (%) | P/E ratio (times) | P/B ratio (times) | Dividend yield (%) |
| Bank of China (BOC) | HKG: 3988 SHA: 601988 | 32% | 39% | 4.9 | 0.47 | 6.6% |
| China Construction Bank (CCB) | HKG: 0939 SHA: 601939 | 39% | 20% | 4.4 | 0.49 | 6.9% |
| Industrial & Commercial Bank of China (ICBC) | HKG: 1398 SHA: 601398 | 35% | 17% | 4.6 | 0.48 | 6.7% |
| Agricultural Bank of China (ABC) | HKG: 1288 SHA: 601288 | 64% | 47% | 5.3 | 0.55 | 6.0% |
| Bank of Communications (BoCoM) | HKG:3328 SHA: 601328 | 32% | 37% | 5.1 | 0.48 | 6.4% |
| China Merchants Bank | HKG: 3968 SHA: 600036 | 40% | -37% | 6.2 | 0.94 | 5.7% |
With dividends yields of at least 6%, the Big 5 Chinese banks have delivered total returns for the year ranging from 38% to 70%. This is a world beating performance, outperforming many American and Singapore banks.
| Bank | Net interest Margin (%) | Non Performing Loan Ratio (%) | 9M Rev growth (YoY %) | Return on Equity |
| Bank of China (BOC) | 1.59% | 1.26% | 1.74% | 9.2 |
| China Construction Bank (CCB) | 1.70% | 1.35% | 0.1% | 10.9 |
| Industrial & Commercial Bank of China (ICBC) | 1.61% | 1.35% | 1.6% | 9.9 |
| Agricultural Bank of China (ABC) | 1.6% | 1.32% | 5.7% | 10.2 |
| Bank of Communications (BoCoM) | 1.28% | 1.32% | -1.4% | 8.9 |
| China Merchants Bank | 2.15% | 0.94% | 0.1% | 13.8 |
The Chinese banks have faced lacklustre revenue growth, primarily due to weak new bank lending. Bank assets growth saw steady expansion in response to regulators’ renewed call for more credit support to corporate and house borrowers amid the housing market correction.
Banks’ profitability has deteriorated due to falling lending rates and narrowing interest margins. Measures of returns on assets and equity registered the lowest records in more than a decade.
Despite the weak credit growth, non-performing loan percentages have remained stable, reflecting quality and stability of the loan book. This was also due to the disposal of non performing loans by the Big banks to protect their balance sheets and should not be read as a diminishing of asset risks of the overall market.
Chinese policymakers have announced plans to issue government bonds to prop up credit growth and stimulate economic growth. Yet confidence in the broader economy remains weak, especially in the face of impending tariffs.
Loose fiscal and monetary policies vowed by government
China vowed to ramp up policy stimulus to spur growth in 2025, the final year of its current five-year plan so as to meet its range of objectives and economic development goals. To achieve this, China anticipates future growth as largely based on domestic consumption of goods and services and aims to reduce disparities between urban and rural living standards.
To meet its growth objective, China will adopt an appropriately loose monetary policy from 2025, the first easing of its stance in more than a decade, combined with a more proactive fiscal policy to stimulate economic growth.
A further cut on the reserve requirement ratio for commercial lenders is likely in the coming months which could aim to balance the dual objectives of revitalizing the economy and stabilizing the exchange rate.
Typically, a loose fiscal policy will lead to higher inflation and a weaker currency which would mean that central banks tend to balance this with a tight monetary policy.
However, China is pushing stimulus on both fronts to boost the economy. This shows that the Chinese government has greater resolve to take extraordinary measures as compared to previous years
Outlook for banks
Domestic consumption growth in key sectors will be driven and initiated by the public sector and focused on investments in fixed assets in sectors such as Green energy, EVs, advanced manufacturing, and tech hardware. The investment banking arms of the Chinese banks will be a direct beneficiary of this focus.
Consumer confidence will continue to be affected by negative wealth effects from falling asset prices and the weak job markets which would be offset by consumption subsidies, tax reliefs and increase in unemployment benefits.
The key risks that may scupper growth are the property market which remains the prime risk as well as local government finances. In the property market, coordinated measures are being deployed at inventory destocking and price stabilization.
On the one hand, it looks like the property market crisis that dominated headlines toward the end of 2023 was averted.
Property developer defaults have slowed, banks have not collapsed, and property were still being completed. The rapidly increasing inventories of unsold properties finally peaked in early 2024 and have started to gradually come down.
On the other hand, prices continued to fall, and despite a plethora of policy support for the property sector in 2024, prospective buyers are still understandably cautious after years of restrictive policy.
The central government is also well-positioned to assume additional responsibility of the local government finances. Defusing the hidden debt of local governments will also speed up the unsold home buyback programs.
Can the rally continue in 2025?
The bank sector was one of the strongest performing sectors for 2024, marking a turning point. Strong fiscal and monetary policy actions are being put in place to stimulate the economy with the PBOC expecting to continue on its easing path.
China is prioritising domestic consumption, fuelling it with stimulus to mitigate against the uncertainty of impending tariffs on exports.
Many sectors such as property and tech are still in the doldrums with capital and investment spending lacklustre. Overall, there is much room for the economy and stock market to move. However, it is still presumptuous to say that the rally can continue as one year of good performance does not make for a secular growth environment.
While the bank stocks are all still below all-time highs, this is also the case for the broader stock market. While there is hope that 2025 will mark a second year of stock market gains and lead into a bull market, it is safer to assume that the performance of 2024 is merely a mean reversion to a more reasonable level of valuation and 2025 could be a year of mean reversions in other sectors such as the Tech sector.
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Hi,
In one of the paras, you mentioned “Chinese policymakers have announced plans to issue government bonds to prop up credit growth and stimulate economic growth.”.
From my layman understanding, I thought that bond issuance would reduce bond prices, increase interest rate and reduce money supply, thereby tightening economic growth. Can help to clarify if my understanding is incorrect or the para had a typo?
Thanks!
In theory, bond issuance removes money supply as investors purchase the bonds instead of spending.
In China’s situation, the government is taking unutilised money supply and using it to stimulate the economy in various ways such as through subsidies, consumption vouchers and infrastructure investment.
I see, so the government takes the money from bond buyers, and uses it to fund their fiscal projects, hence an expansionary move. Ok got it, thanks for the explanation!