EUR 850.00 For Business Accounts Only

Morningstar | ICBC Saw Strong Improvement in Credit Quality, Deposit Costs Advantage Remained Intact

Industrial and Commercial Bank of China, or ICBC, is China's largest bank. We think its leading scale efficiency and funding advantages endow it with a narrow economic moat.ICBC has a long-established reputation for mass-market retail banking and enjoys low funding costs in the industry. Its established relationships with households, unmatched convenience via more than 16,000 domestic outlets, and brand backed by government credit combine to reward it with the largest retail deposit base, representing about 12% of China's total retail deposits. Thanks to its strategic focus on cross-selling and the largest network in China's urban areas, ICBC enjoys a leading position in bank card and personal wealth management markets. It leads the industry in agency sales of other financial products and provides custody services to a huge amount of financial assets in the form of various financial products, primarily insurance, fund, and trust products. We expect significant cross-selling to help deepen relationships with customers and increase switching costs. The bank's economies of scale as China's largest bank also translate into peer-beating operating efficiency. The bank is one of a few Chinese banks that have delivered continuous improvement in operating efficiency since 2013, despite mounting challenges--including contraction in fee-income growth and net interest margin--during the period.ICBC's banking digitalization is progressing well. Its banking mobile app is the most trafficked among Chinese banks, with monthly active users reaching to nearly 54 million. With the application of Big Data and its supply-chain financing model, ICBC extends lending through its Internet-financing platforms to 920,000 retail customers and 33,000 small and midsize enterprises, contributing about 6% of total loans. Credit quality is better than other loans, as it focuses on diversification with a small average amount, secured loans with various kinds of collateral, and supply-chain financing around anchoring corporates. By optimizing its extensive branch outlets by streamlining operational structure and technology upgrades, we expect further room for operating efficiency improvement.