<Results first take> China Banking Sector results recap – in line 1Q22, stabilized NIM and NPL
What’s new:
China banks under our coverage have announced their 1Q22 results on Apr 29 evening. Most of their earnings growth were in line with expectation, while CEB’s performance is weaker than expected. Key sector trends are:
- Strong loan growth: banks are reporting 6-14% y-o-y loan growth, mostly in line with the 10.6% y-o-y total social financing growth in 1Q22.
- Stabilizing NIM: Despite of a y-o-y drop trend, most of the banks are reporting a q-o-q upward trend in NIM with 0-3bps NIM increase q-o-q.
- Stable asset quality: Overall asset quality is showing a stable trend with -3 to +3 bps of NPL change compared with the end of FY21, despite of the challenging macro environment.
- A challenging environment for fee growth: While the interest income growth is steady, most of the banks see a slowing fee income growth in 1Q22. This is due to the volatile equity and bond market in 1Q22 and wealth management related fee income was largely impacted.
Our view and outlook:
- Expect 2022 overall loan growth to be similar to 2021’s level of 11.6%. The manufacturing sector mid-long term loan saw 29.5% y-o-y growth in 1Q22. With further loosening and stimulus policies, we expect the loan demand from infrastructure and manufacturing sector to offset the slowing down in property sector.
- Expect continuous NIM downward pressure in 2022, with further LPR cut expected. But we expect banks will see less NIM drop in 2022 than in 2021 with efforts of optimizing asset and liabilities structure.
- Cautious on 2Q22 asset quality. Though NPL ratio is in general stable, the special mention loan and new NPL formation ratio is in an upward trend, especially for some of the Joint-Stock banks like PAB and CITIC. Property sector is still showing higher risk in 1Q22. We are cautious on 2Q22 asset quality, while overall remain positive in FY22 asset quality, with the expectation of economy recovery in 2H22.
- Valuation: Most of the names except PSBC and CMB are trading below their 5-yr average, which we believe has largely priced in the NPL risks. We are positive on the China banking sector, given their steady fundamental growth and outlook, and undemanding valuation with attractive dividend yields of 5-10% in FY22F.
- Stock pick: Top pick PSBC (1658 HK) for its resilient asset quality and strong retail exposure (60% of its loans are retail loan), which are less impacted by economy uncertainties.
| Ticker | 3988 | 1288 | 939 | 1398 | 3328 | 1658 | 3968 | 000001 | 998 | 6818 |
| Company name | BOC | ABC | CCB | ICBC | BOCOM | PSBC | CMB | PAB | CITIC | CEB |
| Total loan (Rmb bn) | 16,510 | 18,152 | 19,747 | 21,603 | 6,928 | 6,809 | 5,758 | 3,154 | 4,953 | 3,454 |
| Loan y-o-y growth (%) | 10.2% | 13.0% | 11.7% | 10.9% | 12.4% | 13.7% | 8.4% | 13.5% | 6.6% | 9.3% |
| NIM (%) | 1.74 | 2.09 | 2.15 | 2.1 | 1.56 | 2.32 | 2.51 | 2.8 | 2.02 | 2.19 |
| y-o-y (bp) | -4 | 2 | -4 | 2 | -8 | -1 | -7 | -11 | -8 | |
| q-o-q (bp) | -1 | -3 | 2 | -1 | 0 | 2 | 3 | 1 | 1 | 3 |
| Interest income y-o-y growth (%) | 5.54 | 7.75 | 8.39 | 6.41 | 10.32 | 4.09 | 9.97 | 7.31 | 1.24 | 0.13 |
| Fee income y-o-y growth (%) | -6.81 | 4.27 | 0 | 1.22 | 8.82 | 39.59 | 5.49 | 4.79 | 4.11 | -2.04 |
| Net profit (Rmb bn) | 57.8 | 70.8 | 88.7 | 90.6 | 23.3 | 25.0 | 36.0 | 12.9 | 17.4 | 11.8 |
| y-o-y growth (%) | 7.0% | 7.4% | 6.8% | 5.7% | 6.3% | 17.8% | 12.5% | 26.8% | 10.9% | 2.0% |
| Consensus FY22F net profit growth (%) | 5.2% | 7.1% | 6.0% | 5.2% | 8.8% | 19.3% | 15.0% | 25.1% | 9.0% | 15.4% |
| NPL ratio (%) | 1.31 | 1.41 | 1.40 | 1.42 | 1.47 | 0.82 | 0.94 | 1.02 | 1.35 | 1.24 |
| y-o-y (bp) | 0.6 | -11 | -15 | -16 | -17 | -4 | -8 | -8 | -19 | -12 |
| q-o-q (bp) | -3 | -2 | -2 | 0 | -1 | 0 | 3 | 0 | -3 | -1 |
| Coverage ratio (%) | 187.3 | 301.1 | 245.8 | 209.9 | 152.1 | 413.6 | 483.1 | 289.1 | 184.2 | 165.7 |
| q-o-q (ppt) | 0.4 | 8.0 | 22.7 | 4.1 | -13.5 | -5.0 | -7.5 | 0.7 | 4.1 | 1.5 |
| CET 1 ratio (%) | 11.3 | 11.4 | 13.7 | 13.4 | 10.3 | 12.4 | 12.7 | 10.5 | 8.7 | 8.8 |
| CAR ratio (%) | 16.6 | 17.2 | 17.9 | 18.3 | 15.2 | 15.0 | 17.3 | 13.3 | 13.1 | 12.4 |
| ROE (%) | 11.1 | 12.4 | 13.5 | 11.6 | 11.7 | 14.8 | 17.7 | 15.6 | 13.6 | 10.5 |