THE world’s largest lender by assets has seen a near doubling of its share price in less than two years.

Now, a growing chorus of analysts argue that improving asset quality, a shadow-banking crackdown and international comparisons could justify a still-higher valuation for Industrial & Commercial Bank of China Ltd. (ICBC), currently worth HK$2.54 trillion (US$325 billion).

A government campaign to tackle excessive leverage is curbing China’s shadow banking sector, which will benefit large lenders like ICBC. Asset quality is improving at major State-owned enterprises, allowing the lenders to reduce reserves against bad debts. And ICBC still trades at a large discount to international peers, even after the 73 percent surge from the low in February 2016.

“Chinese banks’ valuations are definitely trending higher,” said Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities Co. “Asset quality has been very stable and their profit prospects are so much better than last year.”

Even after the recent rally, ICBC trades at 0.92 of its estimated book value for 2017, below the average of 1.28 among 50 global banks including Wells Fargo & Co. and Royal Bank of Canada.

ICBC shares have jumped 11 percent since the People’s Bank of China said Sept. 30 it will cut reserve requirements for most banks from 2018 if they lend enough to small and rural customers. The move was seen as a challenge to shadow loans taken out by such borrowers, reducing competition for traditional lenders such as ICBC.

That prompted analysts at Nomura Holdings Inc. to become more bullish toward Chinese banks, after a year treating the shares with caution — despite surging share prices. It upgraded China Construction Bank Corp. to buy from neutral and reiterated a buy rating on ICBC, in an Oct. 9 report.

“This round of re-rating is a prelude to a long-term valuation recovery of Chinese banks, as the fundamental concerns about the sector start to be addressed in a structural manner,” the Nomura analysts led by Sophie Jiang said in the note. (SD-Agencies)