This report does not constitute a rating action.
China's megabanks will receive solid government support, when needed, even as they increase bail-in capital buffers under regulatory guidelines. This enhanced capital cushion will likely give them more flexibility to fulfill their critical roles to support national priorities.
What's Happening
After adopting total loss-absorbing capacity (TLAC) requirements, China's four global systemically important banks (G-SIBs) have raised their TLAC buffers to 20.5%-21.9% of risk-weighted assets (RWA) as of end-March 2025. Including the Deposit Insurance Fund (DIF) in the 2.5% RWA cap helped raise the banks' TLAC ratios above the 20% minimum requirement. This requirement includes capital surcharges.
Chart 1
ICBC--Industrial and Commercial Bank of China Ltd. CCB--China Construction Bank Corporation. ABC--Agricultural Bank of China Limited. BOC--Bank of China Ltd. BoCom--Bank of Communications.
Why It Matters
China will remain highly supportive of its banking system. This includes the government's proposed capital injections to megabanks amid their increasing support for policy initiatives. We expect the government to support these G-SIBs, if and when needed, before certain bail-in tools, including Tier-2 bonds, TLAC non-capital bonds, and DIF, to cover losses.
We are therefore likely to factor in extraordinary government support when considering issue ratings on the creditworthiness of China's TLAC non-capital bonds. This is consistent with our treatment of TLAC instruments issued by Japanese G-SIBs, which in our view, have high likelihood of receiving extraordinary government support.
This differs from our assessment of similar instruments from Western G-SIBs, in which we anchor the instruments' creditworthiness on banks' stand-alone profiles without factoring in extraordinary government support.
On the other hand, we are likely to keep a one-notch deduction on the issue rating to reflect these Chinese instruments' subordination risks, in line with how we typically treat TLAC instruments globally.
DIF will remain an important component in Chinese G-SIBs' capital structure, similar to Japan's G-SIBs. We expect Chinese authorities will beef up the fund's capacity to manage risks, when needed. Authorities are considering backup financing plans for DIF to improve its financial flexibility. We anticipate this could include allowing the fund to tap into capital markets. This will resemble Japan's arrangements.
What Comes Next
China's G-SIBs will continue to need capital to fund the country's growth target. Narrowing interest margins, fee concessions, and increasing credit losses amid tariff-inflicted economic uncertainties will hinder banks' internal capital accumulation, regardless of their reserves.
Megabanks could accelerate their growth from our baseline loan expansion estimates of 7%-10% over the next two years, a level already above the industry average of 7%-7.5%. This likely stems from certain government policy stimulus to offset the impact of tariff-related shocks.
Bank of Communication Co. Ltd. is the latest Chinese bank to receive G-SIB designation. It needs to meet a higher 19.5% capital requirement by the end of 2026 (Jan 1, 2027). The planned injection of Chinese renminbi 120 billion of new capital from the government and state-owned enterprises will boost the bank's core capital strength and help narrow the bank's shortfall against the TLAC standard.
Editor: Lex Hall
Related Research
- China's Monetary Stimulus Adds Strain For Banks, May 8, 2025
- Global Macro Update: Seismic Shift In U.S. Trade Policy Will Slow World Growth, May 1, 2025
- China's Bad Loans Could Exceed 6% In A Tariff-Related Downside, April 3, 2025
- China Banking Brief: More Capital, More Flexibility, March 5, 2025
- Your Three Minutes In China TLAC: The Deposit Insurance Fund Will Come In Handy, Sept. 12, 2024
- China's TLAC Debuts: The Road Ahead, May 20, 2024
| Primary Contact: | Michael Huang, Hong Kong 852-25333541; michael.huang@spglobal.com |
| Secondary Contacts: | Xi Cheng, Shanghai 852-2533-3582; xi.cheng@spglobal.com |
| Ryan Tsang, CFA, Hong Kong 852-2533-3532; ryan.tsang@spglobal.com | |
| Research Assistant: | Ivy Yi, Hong Kong 852-28411083; ivy.yi@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.