China Banks Earnings: BOC’s Oversea Banking Supports NIM Trend, BONB and CMBC’s NIMs Under Pressure

Bank of China, or BOC, China Minsheng Bank 600016, or CMBC, and Bank of Ningbo, or BONB’s cumulative nine-month net profit growths were largely in line. We maintain our fair value estimates of HKD 3.5 per H share (CNY 3.1 per A share) for BOC, HKD 3.6 per H share (CNY 3.3 per A share) for CMBC, and CNY 32 per A share for BONB. The first nine-month results reflect less net interest margin, or NIM, pressures than peers, which contracted 13, 14, and 10 basis points, respectively, for BOC, CMBC, and BONB. BOC’s NIM performance was slightly stronger than expected, only declining 3 basis points from the first half’s level. We suspect this was mainly attributable to the rising NIM trend as seen in its subsidiary, BOC Hong Kong, which reported a 36-basis-point year-on-year increase for the first nine months, with third-quarter NIM further increased 10 basis points from the second quarter. We expect BOC Hong Kong’s favorable NIM trend to continue to buffer against downward pressures in BOC’s domestic RMB business in 2023 and the first half of 2024. But the benefit should taper off from second quarter of 2024 onward on higher base, rising deposit competition, and falling rates if the Fed starts cutting rates.

On the contrary, we expect BONB to face greater NIM headwinds in coming quarters. Cumulative nine-month NIM declined 10 basis points year on year to 1.89%, or contracting 4 basis points from the first half’s level. The bank saw greater-than-peer volatility in NIM in the past two years due to shorter average asset duration. We expect wider year-on-year NIM contraction for full-year 2023 and early 2024 due to unfavorable base and higher interest rate sensitivity of its SME lending. Though CMBC outperformed peers with a flat NIM from the first half’s level at 1.48%, this was mainly attributable to a low base in 2022 that saw a 31-basis-point decline year on year. Instead of the favorable NIM trend, we believe the market is more concerned about CMBC’s property lending risks.