China Minsheng Bank Earnings: Asset Quality Remains Challenging Despite Derisking Efforts

China Minsheng Bank’s 600016, or CMBC’s, first-quarter revenue growth edged up 0.4% year on year, outperforming joint-stock bank peers in our coverage. While fee income growth of 9% year on year outpaced its peers, we note that this reflects a low base and we think CMBC will continue to see challenges in boosting revenue relative to peers. First-quarter revenue growth largely reflects fee income growth masking an 8% year-on-year slide in net interest income. CMBC’s relatively slower loan growth of 3.5% versus system loan growth of 12% and the average 9% pace among its joint-stock bank peers, points to sliding market share. This reflects fierce competition for good-quality loans and anemic retail credit demands during the past quarter as CMBC’s retail loans merely increased 0.1% from end-2022. The bank was more negatively affected by this trend due to its weaker-than-peer customer base, in our view.

CMBC’s 20 basis point year-on-year decline in net interest margin was in line with peers and also contributed to the revenue contraction. We expect CMBC to continue to face higher-than-peer NIM pressure in 2023 due to its weaker deposit base and the lack of pricing power against borrowers.

Overall, we think the underlying trends were anticipated, and we retain our fair value estimate for CMBC at CNY 3.30 per A-share and HKD 3.60 per H-share. While we continue to see H-shares as undervalued, we think the below-peer asset quality and loan growth will continue to weigh on CMBC’s share price in the near term.