China Banks
Revenue Growth Continues
to Slow
China banks reported double-digit YoY growth on
top line in 1Q12, but fee income growth was weaker
than in previous years, and NIM in general
contracted QoQ despite resilient loan yield. We
believe that with weakening earnings visibility,
stocks will struggle to outperform.
Revenue growth slowing: China banks reported
9-59% YoY net profit growth – broadly in line with
expectation, but trends in revenue drivers disappointed.
Aggregate core revenue growth (NII + fees) was 19%
YoY vs. 30% YoY in 1Q11 and 21% in 4Q11.
Key trends: We observed the following –
Fee growth was slower than a year earlier. We believe
this will remain weak, given the increasing regulatory
scrutiny on fee and off-balance-sheet-related business.
NIM: Except for CMB and CRCB, the banks saw NIM
decline by 1-16bps on quarterly basis in 1Q12. So far,
the downward pressure on NIM is from funding costs.
Going forward, downside risks may come from both
costs and declining lending yield.
Loan and deposit growth broadly on track: We believe
that loan and deposit balances on daily average may be
weaker than quarter-end numbers.
Asset quality better than expected: However, market
will likely continue to be skeptical on asset quality.
We raise earnings estimates by 0-14% for 2012 and
2013, mainly driven by lower credit costs. This is on the
basis of improving macro outlook, and easing pressure
on provisioning, as most banks’ loan loss reserve ratios
are close to or above 2.5%.
Stock calls: As margin will be under pressure, volume
growth is key. Thus, we prefer liquid banks with solid
capital positions, as they are better placed for growth.
We remain OW on ICBC, CCB, ABC and CRCB, and we
remain EW on other banks in our coverage universe.