ICBC's Q4 Results Show Faster Net Interest Income Growth Than SOE Peers

In its fourth quarter, narrow-moat Industrial and Commercial Bank of China reported 6.8% and 10.3% year-on-year growth in revenue and net profits, respectively, largely flat with the 7% and 10.1% growth for the first three quarters. The 10.3% growth in net profits slightly exceeded our expectation for high-single-digit growth on lower-than-expected fourth-quarter credit costs. The results highlighted a stabilizing net interest margin and credit quality improvement. We believe the results are a testimony to ICBC's strong deposit base and ability to optimize its liability structure, which enabled the bank to achieve a 3-basis-point decline in average funding costs compared with the average 4-basis-point increase for China Construction Bank and Agricultural Bank of China. We retain our fair value estimates of CNY 5 for the A shares and HKD 6 for the H shares as a modestly lower credit cost assumption is offset by lower projected NIM in 2022, given the government’s more accommodative policy stance to buffer against the economic shocks from repeated COVID-19 outbreaks and increasing geopolitical risks.