Incident: On March 28, ICBC released its 2023 annual report. It achieved annual revenue of 843.1 billion yuan, -3.7% YoY, and net profit to mother of 364 billion yuan, +0.8% YoY. The weighted average return on net assets was 10.66%, -0.79pct year over year.
Comment:
Non-interest revenue contributions increased, and profit growth remained steady. The year-on-year growth rates of the company's revenue and pre-provision profit in 2023 were -3.7% and -5.7%, respectively, changing -0.2 and 0.8 pct from the previous three quarters; net profit to mother grew 0.8% year on year, the same as the previous three quarters. In terms of the main composition of revenue, net interest income and non-interest income grew by -5.3% and 2.3%, respectively, with year-on-year changes of -0.6 and 1.8 pct, respectively, from the previous three quarters. Dividing the year-on-year profit growth structure, scale expansion and provision were the main contributors, driving performance growth rates of 23.6 and 8.8 pct, respectively. Net interest spreads were the main negative drag; in terms of marginal changes, scale expansion contributed slightly to a slight decline, non-interest rate turned into a slight positive increase, and negative operating expenses dragged down.
The expansion has maintained a high level of intensity, and the credit focus is skewed towards fields such as manufacturing and strategic emerging industries. The company added 30.2 billion new interest-bearing assets in a single quarter, a year-on-year decrease of 49.3 billion dollars. The year-on-year growth rate of interest-bearing assets decreased slightly by 0.3 pct to 13% compared to the end of the 3Q period, maintaining a high intensity of table expansion. Among them, the 4Q quarter added 304.2 billion new loans, which was generally the same year on year. At the end of 2023, the year-on-year loan growth rate decreased slightly by 0.1 pct to 12.4% compared to the end of the 3rd quarter; in terms of the new loan structure, public and retail loans increased by 158.7 billion yuan and 31.2 billion yuan respectively in the 4Q single quarter, which was roughly the same as the same as the previous year; retail sales increased by 31.3 billion yuan year-on-year; notes increased by 114.3 billion yuan in a single quarter, a year-on-year decrease of 24.5 billion yuan. By the end of 2023, the year-on-year growth rates of public and retail loans were 16.8% and 5.1%, respectively, with changes of -0.2 and 0.4 pct respectively from the end of the 3rd quarter.
Looking at the annual loan investment, the company added nearly 2.9 trillion yuan in loans in 2023, an increase of 0.3 trillion yuan over the previous year. The focus was on public and retail credit investment, increasing pressure reduction on low-interest assets such as notes, and optimizing the credit structure. Specifically: 1) There was an increase of 2.3 trillion yuan in public loans, an increase of nearly 0.7 trillion yuan over the previous year, and the growth rate of loans in the manufacturing industry, strategic emerging industries, green, inclusive, agricultural, etc. was significantly higher than the average growth rate of the bank's loans; 2) Retail credit increased by 0.4 trillion yuan, an increase of 0.1 trillion yuan over the previous year. Among them, personal business loans and personal consumer loans were the main drivers, with increases of 4171 billion yuan and 95.8 billion yuan respectively; personal housing loans decreased by 143.5 billion yuan, which was the main drag.
The absorption of market-based debt increased, and the year-on-year growth rate of interest-bearing debt increased by 0.6 pct compared to 3Q. At the end of 2023, the year-on-year growth rates of the company's interest-bearing liabilities and deposits were 13.9% and 12.1%, respectively. The growth rates changed by 0.6 and -0.7 pct respectively from the end of the 3Q; in the 4Q new interest-bearing debt structure, the increases in deposits, bonds payable, and interbank liabilities were -488.8 billion, 163.7 billion, and 4866.1 billion respectively. Among them, deposits decreased by 235.9 billion yuan year-on-year, and payable bonds and interbank liabilities increased by 151.3 billion and 287.7 billion yuan, respectively. The company has further expanded multi-channel funding sources such as financial bonds and interbank deposits.
NIM in 2023 was 6bps narrower than in the previous three quarters to 1.61%, and deposit cost control helped ease the pressure on narrowing interest spreads.
In 2023, the disclosure value of the company's net interest spread was 1.61%, 6 bps narrower than 1-3Q23 and 31 bps narrower than the previous year.
On the asset side, the estimated yield on interest-bearing assets decreased by 2 bps to 3.43% compared to 1-3Q23. The estimate is mainly affected by factors such as declining interest rates on new loans, lower interest rates on stock mortgages, and rolling repricing of loans. From the debt side, the estimated interest-bearing debt cost ratio increased by 2 bps to 2.05% compared to 1-3Q23. At the end of 2023, ICBC's share of term deposits increased by 0.5 pct to 58.6% compared to the end of the 3rd quarter. It is estimated that the continuation of the deposit periodization and long-term trend will drag down debt costs. Considering that the reduction in interest rates listed on early deposit will be further effective in 2024, and in addition, the Federal Reserve is expected to gradually begin a cycle of interest rate cuts, thereby reducing foreign currency deposit costs, and the deposit cost rate is expected to improve year-on-year in 2024.
Net other non-interest income increased 26.2% year over year, boosting the quarter-on-quarter improvement in the growth rate of non-interest income. Non-interest income in 2023 increased 2.3% year over year, 1.8 pct higher than 1-3Q23. In terms of the main components of non-interest income in 2023, 1) net income from processing fees and commissions decreased by 7.7% year on year, up 1.6 pct from the previous three quarters. Affected by factors such as capital market fluctuations and lower risk for residents, the revenue of personal finance and private banking (YoY -14%), and public finance (YoY -16.9%) was under pressure. At the same time, the rate drop also dragged down business revenue such as guarantees and commitments (YoY -17.1%); 2) Net other non-interest income growth rate recorded a significant increase of 9.4pct from the previous three quarters. Investing in bonds Also, unrealized gains from derivative financial instruments increased and unrealized losses from equity instruments decreased, and profit and loss from changes in fair value increased by 14.3 billion dollars over the same period last year.
Asset quality remains stable, and risk compensation capacity is strong. At the end of 2023, ICBC's non-performing loan ratio was 1.36%, the same as at the end of the 3Q; the attention rate was 1.85%, changing -10bp and 6bp, respectively, from the beginning of the year and mid-year. The company wrote off and disposed of 34.6 billion non-performing loans in the second half of the year, an increase of 2.1 billion dollars over the previous year; the net generation rate of non-performing loans was 0.45%, down 7 bps from 23H1. Under the overall sound asset quality, credit impairment losses for the whole year were estimated at 15.8 billion yuan, a year-on-year decrease of 17.4%; impairment loss/average total assets decreased by 11 bps to 0.36% compared to 3Q. At the end of 2023, provision coverage decreased by 2.3 pct to 214% from the end of the 3Q; the loan ratio was 2.9%, down 4 bps from the end of the 3Q.
There has been a steady increase in capital adequacy ratios at all levels. At a lower base, the RWA growth rate at the end of 2023 was 10.9% year over year, up 0.4 pct from the end of the 3rd quarter. At the end of 2023, the company's core level 1, level 1, and capital adequacy ratios were 13.72%, 15.17%, and 19.1%, respectively, up 33, 34, and 31 bps from the end of the 3rd quarter, respectively, and the capital adequacy ratio was strong. The new capital management measures were implemented in early 2024. Benefiting from parameter adjustments and optimization of the scope of the Advanced Internal Assessment Act, the capital adequacy ratio of companies at all levels is expected to increase.
Profit forecasting, valuation and ratings. In recent years, ICBC has continued to promote the implementation of the strategic layout of “promoting strengths, complementing shortcomings, and strengthening the foundation”, and further promoted GBC+ (government, industry, personal services) basic projects. At the same time, it has actively played the role of the bank's “head geese”. The total investment and financing volume has maintained steady growth. At the end of 2023, ICBC's total assets were close to 45 trillion dollars, maintaining global leadership. Combined with the 2023 annual report, and considering factors such as rolling repricing of loans, the 2024 interest spreads will be strongly squeezed. The company's 2024-25 EPS forecast was lowered to 1.02 (-6.1%) /1.05 (-8.2%) yuan, and the 2026 EPS forecast was added to 1.08 yuan. The current stock price corresponds to the PB valuation of 0.52/0.49/0.46 times, respectively. As a major “Chinese” state-owned bank, ICBC has stable operating fundamentals and is in line with the “China Special Assessment” policy logic. At the same time, the dividend rate has remained stable above 30% in recent years, has good dividend returns, and maintains a “buy” rating.
Risk warning: Economic recovery fell short of expectations, downward pressure on loan interest rates increased, and repricing of stock mortgages and CITIC chemical bonds had a significant impact on NIM.