Risk mgmt efforts to preserve Citic Group’s capital vs profit pressures

Banking subsidiary to manage “modest growth appetite” despite narrowing margins.

The risk management efforts of Citic Group will help preserve its capital amidst profitability pressures over the next two years, reports S&P Global Ratings.

Citic Group– the parent company of China Citic Bank (CNCB)– is said to have a strong risk management that should help it conserve its capital cushion through 2026.

Its non-financial business segment is expected to defend the group’s financial headroom over the period, with leverage to stay at 3.5x to 4x, S&P said.

“The company's value-at-risk for the first half of 2024 remained largely stable, despite the continued buildup of certain illiquid investments, which could erode capital,” the ratings agency said in the bulletin, “Citic Group Can Navigate Profitability Pressures.”

The group's specialty steel business has performed better than its peers amidst weak demand, attributed to its high-end product offerings to more diversified end-users in the oil and gas, chemical, clean energy, and auto sectors.

CNCB slated for modest growth
Banking subsidiary CNCB is expected to manage a “modest growth appetite” amidst tightening margins.

“This will help maintain the bank's capital buffer and underpin the group's credit strength. We project CNCB's risk-adjusted capital ratio at comfortably above 5% during the next two years,” S&P said.

CNCB’s loan growth of 1.7% was slower than expected for the first six months of 2024, S&P said, although it was partially offset by CNCB’s efforts to adjust its loan portfolio toward assets yielding higher interest.

Cuts to benchmark lending rates will continue to pressure CNCB's profitability over the next two years, S&P said. The bank reported an annualized return on average assets of 0.79% in the first.

Outside of its banking system, Citic Group’s performance is expected to remain largely unaffected by the results of China Citic Financial Asset Management, an unconsolidated investee in which the group owns a 26.5% stake. 

Citic Financial's net profit had sharply increased to a RMB5.3b gain in the first half of 2024, swinging from a loss in the previous year. 

A sustained recovery will likely take time due to asset quality strains, mainly from the property sector, S&P said.