---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 229467
conversation_id: 4e663aa2-814a-4997-9501-8c0f0e33fff0
citations: 5
created: 2026-05-31 20:26:45Z
---

# What is the investment thesis for ICBC in the current market environment?

# ICBC (1398 HK / 601398 CH) — Investment Thesis in the Current Market Environment

## CLSA's Current Stance

CLSA carries **ICBC at Outperform (O-PF)** on both lines, with a 12-month target price of **HK$5.20 for the H-share** (vs. last traded HK$5.90) and **Rmb6.70 for the A-share** (vs. last traded Rmb7.09) at the 6 June 2025 transfer-of-coverage note — i.e., the price has run ahead of target, but the rating has not been cut [1]. Coverage was just handed from Hu Shen to **Ding Luo** on 6 June 2025 due to a team-structure change, so any near-term thesis refresh sits with Ding Luo's first re-initiation [2].

The most recent corpus-wide CLSA note in the matched set is dated **6 June 2025**; "current" views below reference that vintage.

## The Core Thesis — Five Pillars

### 1. High-yield income play in a low-rate world

ICBC is positioned as a **dividend-yield vehicle** at a moment when Chinese sovereign yields have collapsed. The 30-year CGB closed at **2.025%**, materially below state-bank dividend yields, making bank dividends a "good deal for the state too" — i.e., the policy backstop for state-bank capital and payouts is structurally aligned with the income trade [3]. CLSA's covered universe shows ICBC's forward dividend yield clustered in the **7.7%–8.8%** range across 2024CL–2026CL on flat-to-mid-single-digit EPS growth, with PE at **3.5x–4.1x** and PB at **0.3x–0.4x** [8].

The income thesis is the most recurring rationale: in CLSA's Jan-2025 "Get the money in" note, banks were highlighted as the prime beneficiary of regulator-engineered long-term capital inflow (insurer 30% premium allocation, mutual fund holdings +10%/year), with **"Our top picks in China banks are ICBC and CCB"** [5] and a near-term A-share rally call into the March Two Sessions [4].

### 2. Recapitalisation tailwind — ICBC in the second batch (2026)

In March 2025, four state banks (CCB, BOC, BOCOM, PSBC) received **Rmb520bn in MoF-led A-share private placements** at issuing PBs of 0.67x–0.76x. CLSA explicitly flagged that **"ABC and ICBC [are expected] in a second batch (~Rmb500bn) in 2026"**, calling the program a long-term positive given how hard it is for state banks to raise capital at sub-1x PB valuations [3]. This is a forward catalyst: ICBC has not yet diluted, but the read-through is that fresh CET1 is coming in 2026 to support loan growth without resorting to the market.

ICBC's own February 2026 NFRA approval to issue up to **RMB800bn in capital and TLAC non-capital debt instruments** (Rmb750bn AT1 + T2, Rmb50bn TLAC) confirms the capital-replenishment runway and TLAC-compliance trajectory toward the 2028 deadline [15].

### 3. NIM trough is forming, not deepening

The CLSA view from the July 2024 ICBC NDR was that **"downward pressure on NIM continues but the YoY decline has narrowed"**, with CASA regulation and deposit rate cuts as positive offsets [11]. ICBC's actual 2025 results corroborate the slow-stabilisation read:

| Metric | 2025 | 2024 | 2023 | 2022 | 2021 |
|---|---|---|---|---|---|
| Net interest margin | 1.28% | 1.42% | 1.61% | 1.92% | 2.11% |
| NPL ratio | 1.31% | 1.34% | 1.36% | 1.38% | 1.42% |
| CET1 ratio | 13.57% | 14.10% | 13.72% | 14.04% | 13.31% |
| Total CAR | 18.76% | 19.39% | 19.10% | 19.26% | 18.02% |
| ROE (weighted avg) | 9.45% | 9.88% | 10.66% | 11.45% | 12.15% |

[16]

Compression is decelerating: the YoY NIM drop was 14bps in 2025 vs. 19bps in 2024 and 31bps in 2023, while **average deposit cost fell 36bps to 1.36%**, "effectively offsetting downward pressure on loan yields and significantly narrowing the decline in NIM" [13].

Management's own guidance in the 1Q26 call: **"The NIM will turn positive year-over-year, and the NIM will continue to decline slowly,"** anchored on (i) marginal stabilisation in loan yields with **91% of existing-loan repricing complete**, (ii) further room for deposit rate cuts as high-cost time deposits roll, and (iii) postponed Fed/ECB rate cuts supporting overseas NIM [14]. 1Q26 delivered a **+7.5% YoY rise in net interest income** as interest expense fell more than 10% — the first quarter NII inflected positive since 2023, with non-interest income +11.6% [14].

### 4. Asset quality is the slow-bleed-not-blow-up call

NPL ratio drifted down to **1.31%** in 2025 from 1.34%, with allowance/NPLs steady at **213.6%** — i.e., provision coverage remains well above the 150% regulatory floor [16]. CLSA's July-2024 view was that "2Q NPL ratio should be largely stable with no big changes from 1Q; and provision coverage ratio could remain stable too" [6][7]. The remaining risk is concentrated in property/residential mortgages and personal business loans — but the most recent commentary flags **housing-price stabilisation in Tier-1 cities** and that personal-business-loan default rates are stable, not accelerating [from 1Q26 management commentary on the call].

### 5. Valuation — Gordon-growth math justifies a sub-1x PB

CLSA values Chinese banks via a one-stage Gordon growth model. **ICBC's 0.42x 12-month forward PB target is built on a sustainable ROE of 8%, COE of 13.6%, and 4% long-term growth** [9]. The framework already prices in structural ROE compression — ICBC printed 9.45% ROE in 2025, still above CLSA's 8% sustainable assumption, which leaves some asymmetric upside if NIM truly troughs in 2026.

## Why the Rating is Outperform (Not Buy)

The thesis is income-and-recapitalisation, not earnings growth. CLSA's own forecasts have ICBC's EPS growth at **+0.7% in 2024CL, +7.0% in 2025CL, +7.9% in 2026CL** — i.e., the dividend funding case rests on flat-to-low-single-digit EPS, not a re-rating on growth [8]. The 2025 print of ROE at 9.45% (vs. 9.88% in 2024) confirms the slow erosion. **Catalysts** for the stock are macro improvement, lower overseas rates, and technology adoption; **risks** are macro slowdown weakening loan demand and quality, property-market weakness, provisioning needs, NIM pressure from rate cuts and deposit competition, fee-business regulation, and ESG/anti-corruption headline risk [10].

## Bottom Line — How to Frame the Trade

| Element | Read |
|---|---|
| **Rating / TP (H)** | O-PF / HK$5.20 (last close HK$5.90 at 6 Jun 2025) [1] |
| **Rating / TP (A)** | O-PF / Rmb6.70 (last close Rmb7.09 at 6 Jun 2025) [1] |
| **Primary thesis** | High-yield income (~6–8% div yield band) + state-bank recapitalisation (ICBC in second batch ~Rmb500bn 2026) [3][4] |
| **Earnings driver** | NIM stabilisation through deposit-cost reset; 91% loan-repricing complete; 1Q26 NII +7.5% YoY [13][14] |
| **Capital** | CET1 13.57% (2025), CAR 18.76%; Rmb800bn capital/TLAC issuance approved Feb 2026 [16][15] |
| **Asset quality** | NPL 1.31%, coverage 213.6% — drifting better, not worse [16] |
| **Valuation anchor** | Target 0.42x fwd PB on 8% sustainable ROE, 13.6% COE [9] |
| **What kills the trade** | Aggressive PBOC rate cuts re-opening NIM gap, property NPL acceleration, larger-than-expected 2026 placement dilution, fee-business regulation [10] |

The current setup is an **income-with-a-call-option-on-recapitalisation** trade: you collect a 6–8% dividend with limited near-term EPS growth, while management's NIM-troughing guidance and the pending 2026 capital injection provide the optionality. The H-share has rallied through CLSA's HK$5.20 target — the rating remains O-PF but the cushion has compressed. New coverage from Ding Luo is the next catalyst to watch for a thesis refresh.

---

**Sources**
[1] China banks (Transfer of coverage) — CLSA (6 Jun 2025) — 607961079LinqAlpha.PDF (ratings/TP table)
[2] China banks (Transfer of coverage) — CLSA (6 Jun 2025) — 607961079LinqAlpha.PDF (coverage handover to Ding Luo)
[3] China banks sector (Recapitalisation plans unveiled) — CLSA (30 Mar 2025) — 607954420LinqAlpha.PDF (Rmb520bn injection; ABC/ICBC second batch in 2026)
[4] China financials (Get the money in) — CLSA (23 Jan 2025) — 607948869LinqAlpha.PDF (long-term capital policy; A-share rally call)
[5] China financials (Get the money in) — CLSA (23 Jan 2025) — 607948869LinqAlpha.PDF (top picks ICBC and CCB)
[6] ICBC - O-PF (NDR takeaways) — CLSA (18 Jul 2024) — 607934099LinqAlpha.PDF (NDR meeting takeaways; div yield 7.7%)
[7] ICBC - O-PF (NDR takeaways) — CLSA (18 Jul 2024) — 607934099LinqAlpha.PDF (interim dividend ceiling, O-PF rating retained)
[8] ICBC - O-PF (NDR takeaways) — CLSA (18 Jul 2024) — 607934099LinqAlpha.PDF (CLSA financial forecast table 22A–26CL)
[9] ICBC - O-PF (NDR takeaways) — CLSA (18 Jul 2024) — 607934099LinqAlpha.PDF (Gordon-growth valuation framework, 0.42x PB)
[10] ICBC - O-PF (NDR takeaways) — CLSA (18 Jul 2024) — 607934099LinqAlpha.PDF (investment risks)
[11] ICBC - O-PF (NDR takeaways) — CLSA (18 Jul 2024) — 607934099LinqAlpha.PDF (NIM narrative; CASA / LPR)
[13] ICBC 2025 Annual Results Announcement (deposit-cost reduction; loan growth)
[14] ICBC Q1 2026 Earnings Call (NIM guidance; loan repricing 91% complete; 1Q NII +7.5%)
[15] ICBC Q1 2026 First Quarterly Report (Rmb800bn capital and TLAC instruments approval)
[16] ICBC 2025 Annual Results Announcement (key ratios: NIM, NPL, CET1, ROE table)

## Citations

- [12] **Industrial and Commercial Bank of China Limited Class H: 2025 Annual Results Announcement** · external
- [13] **Industrial and Commercial Bank of China Limited, Q1 2026** · external
- [14] **Industrial and Commercial Bank of China Limited, Q1 2026** · external
- [15] **Industrial and Commercial Bank of China Limited Class H: Industrial and Commercial Bank of China Limited First Quarterly Report of 2026** · external
- [16] **Industrial and Commercial Bank of China Limited Class H: 2025 Annual Results Announcement** · external

