20150901-Maybank_KERPL-Bottom-fish_quality_banks_11页_722kb

China Banks Summary

Core Content

This document provides an analysis of the performance of H-share banks in China for the second quarter and first half of 2015. It highlights the overall outlook for the banking sector, the performance of individual banks, and key financial metrics that indicate their health and profitability.

Main Views

• Sector Rating: The banking sector is rated OVERWEIGHT, indicating a positive outlook.
• NIM Pressure: NIM (Net Interest Margin) pressure is expected to reduce in the second half of 2015 due to limited impact from interest rate cuts and deposit rate caps.
• Net Fees Growth: Net fees growth is not expected to be significantly affected by stock market turmoil. It is estimated that the net fees growth will be around 30% for H-share banks in 2015.
• Credit Costs: Credit costs are expected to peak in 2015 and decline slightly in 2016, especially for banks with better asset quality.
• Provisioning Policy: Banks have maintained or increased their provision-to-loan ratio, indicating a prudent approach to asset quality.
• Non-loan Impairment Charges: These have declined due to reduced exposure to shadow bank assets following regulatory changes.
• Capital Positions: Most banks maintain strong capital positions with CET1 CAR (Common Equity Tier 1 Capital Ratio) above regulatory minimums, except for ABC.

Key Information

Banks with Better Asset Quality

• BOC, BOCOM, CCB, BOCQ, CQRB & ICBC are expected to recover faster than peers in this credit cycle.
• State-owned banks (except ABC) and Chongqing banks (BOCQ & CQRB) reported lower new NPL (Non-Performing Loan) formation rates, attributed to fewer exposures to small-to-micro enterprises and stronger economic growth in Chongqing.

Performance Highlights

• Earnings: H-share banks' net profit grew by 2.3% YoY in 2Q15, with most earnings in line with consensus forecasts.
• Loan Growth: Loan growth was largely in line with 2014 levels, with a shift towards infrastructure, mortgages, and consumer finance.
• NIM: Most banks saw NIM narrowing by 3-25bps QoQ, with BOCQ and CNCB benefiting from reduced expensive deposits.
• Net Fees Contribution: All banks except ABC reported strong YoY growth in net fees, driven by unit trust distribution and custodian fees, and other fee income streams.
• Cost-Income Ratio: Most banks improved their cost-income ratio, except BOCOM, which saw a slight increase due to branch relocation and IT upgrades.
• New NPL Formation Rate: BOC, BOCOM, BOCQ, and ICBC reported a decline or limited rise in new NPL formation, while others saw a drastic increase.
• Provision-to-loan Ratio: Most banks increased their provision-to-loan ratio in June 2015, providing a buffer for potential asset quality issues.
• Capital Adequacy: CET1 CAR for most banks remained above regulatory requirements, with some banks showing a slight decline due to dividend payments.

Key Banks and Their Ratings

Bank	BB Code	Rating	SP (HKD)	TP (HKD)	Upside (%)	Net Profit (CNYm)	PER (x)	P/BV (x)	ROE (%)	Yield (%)
ABC	1288 HK	HOLD	3.13	3.40	8.6	179,461 / 177,970 / 192,443	4.5 / 4.7 / 4.5	0.8 / 0.8 / 0.7	19.6 / 16.9 / 16.4	7.3 / 7.1 / 7.4
BOC	3988 HK	BUY	3.54	4.55	28.4	169,595 / 171,844 / 193,561	4.8 / 4.8 / 4.4	0.8 / 0.7 / 0.7	17.0 / 15.2 / 15.5	6.8 / 6.7 / 7.3
BOCOM	3328 HK	BUY	5.84	7.65	31.0	65,850 / 65,618 / 73,478	5.2 / 5.4 / 4.9	0.7 / 0.7 / 0.6	14.8 / 13.3 / 13.5	5.8 / 5.6 / 6.1
BOCQ	1963 HK	BUY	5.70	8.00	40.4	2,827 / 3,282 / 4,419	4.3 / 4.2 / 3.8	0.8 / 0.7 / 0.6	19.2 / 16.8 / 17.7	6.0 / 5.0 / 6.6
CCB	939 HK	BUY	5.45	7.05	29.4	227,830 / 236,818 / 266,183	4.8 / 4.7 / 4.3	0.9 / 0.8 / 0.7	19.7 / 17.9 / 17.9	7.0 / 7.1 / 7.7
CMB	3968 HK	SELL	18.46	14.90	(19.3)	55,911 / 56,383 / 69,374	6.6 / 6.7 / 5.7	1.2 / 1.1 / 1.0	19.3 / 16.7 / 18.1	4.6 / 4.4 / 5.3
CMSB	1988 HK	SELL	7.51	6.55	(12.8)	44,546 / 39,806 / 47,839	4.6 / 5.8 / 5.0	0.9 / 0.8 / 0.7	20.3 / 14.7 / 14.8	3.1 / 2.4 / 2.8
CNCB	998 HK	HOLD	4.75	5.60	18.0	40,692 / 39,496 / 47,639	4.3 / 4.8 / 4.1	0.7 / 0.6 / 0.6	16.8 / 14.1 / 15.1	0.0 / 6.3 / 7.3
CQRB	3618 HK	BUY	4.53	6.85	51.2	6,793 / 7,693 / 9,696	4.9 / 4.4 / 3.6	0.8 / 0.7 / 0.7	17.5 / 17.4 / 19.2	5.6 / 6.2 / 7.5
HUSB	3698 HK	HOLD	3.48	3.55	1.9	5,673 / 5,224 / 6,907	5.4 / 6.0 / 4.7	0.8 / 0.8 / 0.7	16.7 / 13.7 / 16.3	5.8 / 5.2 / 6.6
ICBC	1398 HK	HOLD	4.58	5.15	12.5	275,811 / 267,049 / 293,960	4.7 / 4.9 / 4.6	0.9 / 0.8 / 0.7	19.9 / 16.8 / 16.6	7.1 / 6.7 / 7.2

Summary of Key Performance Indicators

Loan Growth

• 2Q15: Most banks saw a decline in loan growth compared to previous quarters, with BOC, CMB, and CNCB being exceptions.
• YoY: Loan growth was largely in line with 2014 levels, except for BOC, CMB, and CNCB.
• HoH: Loan growth showed a decline in some banks, indicating a reduction in risk-taking.

NIM

• 2Q15: Most banks experienced NIM narrowing, with BOCQ and CNCB showing less pressure due to reduced expensive deposits.
• QoQ: NIM declined by 3-25bps for most banks, but some showed stability or growth.

Net Fees Contribution

• 2Q15: All banks except ABC reported strong YoY growth in net fees, driven by unit trust distribution and custodian fees.
• YoY: Net fees grew across the board, with some banks showing significant increases.

Cost-Income Ratio

• 1H15: Most banks improved their cost-income ratio compared to 1H14, except for BOCOM, which saw a slight increase due to branch relocation and IT upgrades.

New NPL Formation Rate

• 2Q15: Some banks reported a decline or limited rise in new NPL formation, while others saw a sharp increase.
• Drivers: New NPLs mainly came from manufacturing, wholesale & retail trade, and coal mining loans.

Provision-to-loan Ratio

• 2Q15: Most banks increased their provision-to-loan ratio, indicating a more conservative approach to provisioning.

CET1 CAR

• 2Q15: Most banks maintained CET1 CAR above regulatory minimums, with a slight decline for ABC due to dividend payments.

RWA/Total Assets Ratio

• 1H15: The ratio declined for most banks, indicating a reduction in risk appetite.

Conclusion

The analysis suggests that while the banking sector faces some challenges in terms of NIM and NPL formation, the overall outlook remains positive. Banks with better asset quality and prudent management are expected to recover faster, and the sector is recommended as OVERWEIGHT. The document also highlights the importance of monitoring credit costs and capital positions for a comprehensive understanding of bank performance.