EUR 850.00 For Business Accounts Only

Morningstar | PSBC enjoys strong growth potential thanks to its differentiated lending focus.

Postal Savings Bank of China boasts a strong retail deposit base with market share of 10.5% in China. It is the only large bank that has seen consistent growth in retail deposit share since 2013, thanks to its inherent advantage in the rural banking market due to its longtime operation in the form of postal savings and remittance outlets. It operates the largest branch network, covering all urban cities and 98.9% of counties. Its extensive network translates to strong deposit base, but this does not come without costs, PSBC must pay agency fees to its parent for deposits absorbed through agency outlets that were owned by its parent, which contribute over 60% of total deposits, making its overall funding costs higher than those of moaty Chinese banks we cover.Contrary to large peers, PSBC enjoys strong growth potential in both its lending and its fee-income business. Financing demands from retail customers in county areas, and small and micro enterprises have long been underserved in China. PSBC began its commercialization and lending business in 2007, and it has a very low loan/deposit rate. Increasing allocation to high-yield retail loans from low-rate fixed-income investments should provide strong support to net interest margin. Credit quality risks are well contained, thanks to its short lending history and differentiated lending focus. It adopts a “barbell” strategy and aims to provide financing to large enterprises, along with retail and small enterprise customers, leading to heavy exposure to retail loans and minimal exposure to large and midsize enterprise borrowers. Large enterprises account for about one fourth of total loans, with a high concentration toward large SOEs and almost no bad debts. Retail consumption loans and small and micro business loans are long-term growth drivers for PSBC’s loan portfolio. We expect its credit costs will increase modestly, as credit risks in small and micro business loans should increase. However, PSBC is able to handle risks better than peers thanks to its deep penetration, solid knowledge about and relationships with local communities, geographic diversity, and low average loan amount per borrower.