Event: Zijin Bank disclosed its 2020 interim report. 1H20 achieved operating income of 2.47 billion yuan, an increase of 2.5% over the previous year, and net profit of 730 million yuan, an increase of 2.0% over the previous year. The 2Q20 non-performing rate remained flat at 1.68% from quarter to quarter, and provision coverage increased 4.5 percentage points to 245% from quarter to quarter. Performance and asset quality are in line with expectations. Zijin Bank stepped up provision and calculation efforts in the first half of the year, and profit performance was in line with expectations: 1) Net interest income: the narrowing of interest spreads had a significant impact on net interest income. The 1H20 net interest spread fell 17bps to 2.01% year on year, and it is estimated that the average daily interest-bearing asset balance increased slightly by 3.4% year on year; 2) Non-interest income: 1H20 non-interest income increased 46% year on year, mainly due to a sharp increase in investment income of 146%; net fee revenue fell 5.1% year on year. Among them, bank card fee revenue increased by 964% year on year due to the low base during the same period, while bank card fee revenue increased 964% year on year, while agency and settlement fees increased by 964% year on year Income differentiation Year-on-year decrease of 64%/38%; 3) Cost-to-revenue ratio: The cost-to-revenue ratio decreased by 1.2pct to 24.5% year-on-year, mainly due to savings in employee expenses; 4) Credit costs: Estimated 1H20 annualized credit costs increased by 66 bps to 1.60% year on year, and provision and planning efforts increased. Bad assessment is strict, risks are mitigated vigorously, and asset quality remains stable: 1) Inventory asset quality is clean, asset quality remains stable: Zijin Bank's 2Q20 non-performing rate remained stable at 1.68% month-on-month, stable, 1H20 plus post-write-off, non-performing loan generation rate increased 3 bps to 74 bps from 2H19, provision coverage increased 4.5 pct to 245% from quarter on quarter, and provision base continued to be consolidated. 2) Include all overdue loans as bad, and increase write-off efforts to mitigate risks: Zijin Bank maintains extremely strict standards for determining non-performing loans. Overdue loans/non-performing loans account for 92.5%, and all overdue loans have been included as bad. Write-off efforts have increased, and 1H20 loans have been written off for 220 million yuan, a sharp increase of 73% over the previous year. The attention rate for forward-looking indicators fell by 41 bps to 1.34% from the beginning of the year, and the overdue rate fell by 2 bps to 1.55% from the beginning of the year. The potential risk indicators are manageable. The deposit base is solid, and the asset-side structure continues to be optimized. It is estimated that the 2Q20 net interest spread fell by 10 bps to 1.96% from quarter to quarter: 1) On the debt side: 2Q20 deposits accounted for a decrease of 0.6 pct from quarter to quarter, but remained at a high level of 72.4%, with a share of 54.1% on public deposits. In terms of price, it is estimated that 1H20 deposit costs fell 11bps to 1.88% month-on-month compared to 2H19, maintaining the low cost debt advantage. 2) Asset side: The decline in market interest rates led to a decline in returns on various assets. Among them, 1H20 bond investment and loan yields fell 48 bps and 13 bps from 2H19 to 3.19% and 5.13%, respectively. However, Zijin Bank continued to optimize its asset structure. The share of 2Q20 loans increased by 2.4 pct to 54.8% from quarter to quarter. 2Q20 credit investment was still mainly against the public, and new loans to the public (including discounts) accounted for 92% of the new loans. The yield on interest-bearing assets of 1H20 Zijin Bank fell 22bps to 4.23% from 2H19. The strategic positioning is clear, and the business returns to its roots. Since its establishment, Zijin Bank has always been based on the market position of “serving the three rural areas, serving small and medium, and urban and rural areas”. It is deeply involved in the mainland of Nanjing, insists on serving the development of the local real economy, scientific management and steady management, helping the regional economy take off, and “resonating with the same frequency” as the development of the Nanjing region. In terms of business, it has returned to the roots of deposit and loan business, and has continued to sink and strengthen its role as the main force in the rural financial market in Nanjing. Management capacity is improving quality and efficiency, and future growth potential is still worth looking forward to. Profit forecasting and investment advice: Zijin Bank's bad assessment is very strict, risks are vigorously written off and mitigated, and potential defects are controllable; it has a solid deposit base, returns to the roots of the deposit and loan business, and continues to optimize its capital structure; its operating capacity has improved quality and efficiency, and future growth is still worth looking forward to. Net profit for 2020-2022 is expected to increase by 2.0%, 5.7%, and 8.3% year on year, respectively (increase credit cost and cost to income ratio, lower profit forecast, increase 2022 forecast, increase forecast for 2022. Originally, net profit growth rate for 2020-2021 was 16.6%/16.9% year on year). The current stock price corresponds to 1.01 times PB in 2020, maintaining an increase in holdings rating. Risk warning: The sharp downturn in the economy has caused bad risks for banks, and asset-side pricing capabilities have fallen short of expectations.