is China Construction Bank a good investment?

June 23, 2023

Whether China Construction Bank (CCB) is a good investment

The global economy is currently experiencing uncertainty and risk due to various factors such as the post-Covid effect, Russian-Ukraine conflicts, and rising inflation rates. Within this context, the banking industry, being a fundamental block of all other industries, is inevitably affected the most. However, according to the 2023 banking and capital market outlook report by Deloitte, banks worldwide can navigate through the current uncertain environment and position themselves for a brighter future.

Moreover, large and well-diversified banks are expected to perform relatively well in defending the incoming risks and uncertainties.

Let’s analyze whether China Construction Bank (CCB) is a good investment compared to J.P. Morgan (JPM), US Bank (USBank), Industrial and Commercial Bank of China (ICBC), and Bank of China (BOC).

J.P. Morgan Chase, founded in 1799, is the largest financial holding company in the U.S. and the largest investment bank globally. With $3.7 trillion in assets, it maintains a significant market share in the U.S. and a substantial presence in the global banking market (Commercial Banking Industry in the US – Market Research Report). J.P. Morgan Chase operates through four main segments: Consumer and Community Banking (CCB), Corporate and Investment Banking (CIB), Commercial Banking (CB), and Asset and Wealth Management (AWM). Based on data from Business Quant, CIB contributes the largest percentage of revenues at 44.1% in 2021, followed by CCB at 37.79%. AWM and CB account for smaller portions, at 12.32% and 7.2% respectively, in 2021.(Zaveri, 2023)

US Bank, founded in 1863, has grown through a series of mergers and acquisitions and is now one of the largest banks in the U.S., serving individuals, businesses, and institutional clients. Operating primarily in the United States with a 3.38% market share, US Bank encompasses four segments: consumer banking, commercial banking, wealth management, and payment solutions.

According to US Bank’s self-report on their official website, consumer banking contributes 39% of total revenue, followed by payment solutions at 28%, and commercial banking and wealth management together accounted for 33%.(Fact sheet: FAQ: U.S. bank 2023)

Industrial and Commercial Bank of China(ICBC), the largest commercial bank in China, holds a dominant position in the country’s banking market with approximately 18.6% market share. ICBC operates in three major segments: corporate banking, personal banking, and treasury operations. Personal banking is the strategic focus of the company, contributing 50% of total revenue in 2020 according to ICBC’s self-report. Corporate banking and treasury operations are secondary focuses. (Industrial and Commercial Bank of China Limited)

Bank of China (BOC), founded in 1912, is the fourth-largest bank in China with a 12.2% market share in terms of total industry revenue. BOC primarily focuses on segments such as corporate banking, investment banking, insurance, treasury operations, asset management, and other financial services. Corporate banking is the main revenue source for the Bank of China, with a focus on both major corporate customers and small and medium-sized enterprises.(Nikkei Asia, Bank of China Ltd..)(Main Business of Bank of China)

China Construction Bank (CCB), as one of the “Big Four” banks in China, ranks among the largest banks globally in terms of total assets. CCB operates in three major business segments: corporate banking, personal banking, and treasury operations. CCB differentiates itself with an extensive customer base and established relationships with major business groups and leading companies in various industries.(China Construction Bank, History). The bank’s success can be attributed to its expertise in corporate banking, construction project financing, and international operations. With its deep knowledge of the Chinese market, CCB has been instrumental in supporting the country’s infrastructure development projects, capitalizing on the growing demand for financing in the construction sector.

is China Construction Bank a good investment?

In the analysis of the five banks’ performances, we will focus on four key factors: profit margin, return on assets (ROA) and return on equity (ROE), and revenue performance. Industrial and Commercial Bank of China (ICBC) has the highest profit margin at 48.9% in 2022, followed closely by China Construction Bank (CCB) at 48.35%. The profit margins for Bank of China (BOC), J.P. Morgan (JPM), and US Bank (USBank) were 42.54%, 32.54%, and 18.07% respectively. ICBC’s high-profit margin is attributed to tight cost control and the effective implementation of their 14th five-year strategy, as reported by ICBC.

ROA and ROE are considered important profitability ratios for the banking industry, as they indicate the profitability of a company relative to its assets and equity. Among the five banks, J.P. Morgan (JPM) demonstrates excellent performance, with a ROA and ROE of 1.09% and 14.27% respectively. China Construction Bank (CCB) exhibits the highest ROA and ROE among the three Chinese banks, with figures of 0.94% and 11.81% respectively, while ICBC reports ROA and ROE of 0.91% and 10.39%, and BOC reports ROA and ROE of 0.83% and 9.54% respectively. US Bank (USBank) shows a ROA and ROE of 0.94% and 11.39% respectively.

is China Construction Bank a good investment?

Lastly, the evaluation of revenue performance from 2021 to 2022 reveals that US Bank (USBank) and J.P. Morgan (JPM) exhibited the highest revenue growth rates of 6.4% and 5.8% respectively. However, both ICBC and CCB experienced a decline in revenue during this period, with decreases of 2.8% and 0.17% respectively. Bank of China (BOC) outperformed its Chinese counterparts with a growth rate of 2.2% in total revenue. The underperformance of Chinese banks was attributed to the impact of the Covid-19 pandemic on China’s economy, whereas the U.S.-based banks demonstrated resilience.

In conclusion, the banking industry plays a critical role in the global economy, and it is important to carefully evaluate the investment potential of different banks. Among the performances of the five banks, China Construction Bank is not a good investment for the following reasons. Firstly, JPM showed excellent performance on both ROA ROE of 1.09% and 14.27% respectively. Secondly, with the impact of the pandemic period, both JPM and USBank outperformed banks in China, which reflects a high resilience in facing and defending the potential risk from both the market side and environmental side. As a result, investors should focus their attention on banks in the U.S. such as J.P. Morgan in defending the potential incoming rescission and crisis.