BoCom Earnings: Net Interest Income Growth Was Strong on Smaller-Than-Peer Pressure in NIM

Bank of Communications', or BoCom’s, first-quarter results were largely in line. The results highlight a stronger-than-expected net interest income growth at 2% year on year, versus the 3% decline in 2023, underpinned by a smaller-than-expected contraction in net interest margin, or NIM, despite slowing loan growth. First-quarter NIM contracted 6 basis points year on year to 1.27%, versus the 20-basis-point decline in 2023, and rebounded 5 basis points from the fourth quarter. Despite such a positive surprise, we do not expect the declining NIM trend to reverse in 2024. BoCom’s NIM contraction is likely smaller than SOE peers, due to 1) its relatively high reliance on interbank funding benefited from lower interbank rates, 2) efforts to reduce high-cost corporate agreement deposits, and 3) double-digit growth in high-yield retail consumption and small business loans. Despite easing funding cost pressure, the average loan rate of strategic customers declined 3 basis points sequentially. As competition for quality borrowers and term deposit migration continues, we expect NIM to trend down in coming quarters and retain our projection for 2024 NIM at 1.16%.