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Morningstar | CCB Reported Slower Revenue Growth Than Its Peers in 1Q; Despite Strong Fee Income Growth

China Construction Bank is China's second-largest bank. Despite mounting challenges in China's banking sector, we believe CCB's leading scale, lower-risk banking assets, and strong capital position should help the narrow-moat bank navigate difficulties better than peers.We believe CCB's strong deposit franchise is a key differentiating factor amid the accelerating deposit migration, thanks to an extensive network and entrenched relationships with average household and corporate customers. Deposit competition continued to intensify over the past few years, as a result of ongoing interest rate liberalization, competition from fintech players and smaller banks. Besides, savers' strong appetite for higher-yield shadow banking and other financial products has led to accelerating deposit outflow. CCB’s deposit strength, evidenced by high proportions of retail deposits and demand deposits, resulted in a milder impact on average deposit costs than most peers during the past few years. CCB garners inherent advantages in corporate banking through long-established relationships with large enterprizes and local governments and solid expertise in construction and infrastructure lending. Despite lower lending rates, its high-quality corporate customer base allows it enviable scale efficiency and relatively lower risks under challenging economic conditions. Besides, the bank has the industry highest mix of low-risk home mortgage loans, representing one third of CCB's loan book. Personal consumption loans have become another growth driver for the bank, representing nearly 2% of total loans. CCB has lower-than-peer credit risk. As the largest home mortgage lender, CCB’s home mortgage loans accounted for 34% of total loans, with bad debt ratio remaining low at 0.24%. Lending to low-risk loans--including transportation, utilities and home mortgage--has increased to 52% of total loans.