RAROC profile and corporate credit pricing model derived from Pillar 3 disclosures.
Bank of China is a China-based bank with approximately EUR 13.6tn of corporate credit exposure (EAD) under the F-IRB approach to credit risk capital. The numbers below come directly from Bank of China's most recent Pillar 3 CR6 regulatory filings and are used to model how this bank prices corporate credit facilities.
Bank of China is a top-10 corporate lender by disclosed EAD (8th). Its cost-to-income ratio of 34.0% is exceptionally lean (-15.8pp vs the 59-bank cross-section average of 49.8%). The corporate portfolio is mixed-grade, with an EAD-weighted average PD of 2.8% against a cross-bank average of 2.1%.
Under the foundation IRB approach, supervisory LGDs are applied rather than internal estimates, which generally inflates credit RWA versus A-IRB banks with the same obligor mix — a structural headwind this bank carries on every BBB+ term facility. Unsecured LGD disclosed at 38.2% is +1.3pp against the 36.8% cross-bank average, in line with the peer median.
On the standardised BBB+ EUR 25M 5-year term loan used across every bank profile, Bank of China lands in the top 10 by sample RAROC (#6 of 59), with a RAROC of 8.06% and a minimum spread of 233bp to reach the 12% hurdle. Within China specifically, the bank ranks #3 of 3 on this same calculation.
| Parameter | Value | What it means |
|---|---|---|
| IRB approach | F-IRB | How the bank computes risk-weighted assets |
| Cost-to-income ratio | 34.0% | Operating cost share of net revenue |
| Effective tax rate | 22.0% | Applied to RAROC numerator after EL and funding |
| Average corporate PD | 2.78% | EAD-weighted probability of default |
| Avg LGD (unsecured) | 38.2% | Loss share if borrower defaults, no collateral |
| Avg LGD (secured) | 25.0% | Loss share with eligible collateral |
| Funding spread | 10bp | Bank's wholesale funding cost above risk-free |
| Corporate EAD | EUR 13.6tn | Total exposure at default to corporates |
On a representative BBB+ rated, 5-year term loan of EUR 25M at 150bp spread with a 20bp commitment fee, Bank of China would generate an estimated RAROC of 8.06% against a typical 12% bank hurdle rate. To hit that hurdle on this exact deal, the bank would need a minimum spread of 233bp. This deal is below target — the bank would likely push for higher pricing or additional ancillary business.
| Component | Value |
|---|---|
| Annual revenue (spread + fees) | EUR 385,000 |
| Operating cost | EUR 154,000 |
| Expected loss (PD × LGD × EAD) | EUR 28,750 |
| Capital required (FPE) | EUR 2,451,320 |
| RAROC (after tax) | 8.06% |
| Min spread to hit 12% RAROC | 233bp |
Out of 59 banks in the OpenRAROC dataset, Bank of China ranks #6 by RAROC on this sample deal.
| Rank | Bank | Country | RAROC | Min spread |
|---|---|---|---|---|
| 1 | Qatar National Bank | Qatar | 9.00% | 203bp |
| 2 | DBS Group | Singapore | 8.18% | 224bp |
| 3 | JP Morgan | United States | 8.12% | 231bp |
| 4 | ICBC | China | 8.06% | 233bp |
| 5 | China Construction Bank | China | 8.06% | 233bp |
| 6 | Bank of China | China | 8.06% | 233bp |
| 7 | Handelsbanken | Sweden | 8.06% | 233bp |
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