Incident: The Postbank released its 2023 annual report, achieving revenue of 342.5 billion yuan, +2.3% year over year, profit to mother of 86.3 billion yuan, +1.2% year over year; non-performing rate of 0.83%, up 2 bps from month to month.
Performance: Net interest income is growing steadily, and non-interest income supports the acceleration of revenue growth.
The annual revenue and net profit growth rates of the Postbank were 2.3% and 1.2%, respectively. The growth rates increased by 1.0 pc and decreased by 1.2 pc compared to the previous three quarters, respectively:
1) Net interest income: A year-on-year increase of 3.0% for the full year, a slight decrease of 0.1 pc from the three-quarter report. The performance was stable. The net interest spread for the whole year was 2.01%, down 4 bps from month to month (3 bps decrease in the three-quarter report). In terms of breakdown:
A. Asset side: Loan interest rates fell 11 bps to 4.13% from the semi-annual report, mainly retail loan interest rates fell 17 bps to 4.78% (expected mainly due to the reduction in stock mortgage interest rates), and interest rates on public loans fell slightly by 3 bps to 3.62%.
B. Debt side: Stock interest rates decreased slightly by 1 bps compared to the semi-annual report. Among them, personal deposits fell 1 bps to 1.56%, and interest rates on public deposits remained flat at 1.33%, and overall performance was stable.
2) Net income from handling fees and commissions: The year-on-year growth rate for the whole year was -0.64%. After excluding the impact of the transformation of annual net worth products to one-time accrued revenue (mainly in 22Q2), the net processing fee revenue growth rate was 12.1%, and the revenue growth rate was 3.3%. In terms of business segmentation, in addition to adjustment factors involving financial management, transaction fee revenue from agency business, investment business, and settlement business increased by 24.2%, 42.9%, and 7.3%, respectively, while the bank card business, where demand is relatively weak, also maintained positive growth of 0.4%.
3) Other non-interest income: year-on-year decline of 1.5% for the full year (down 11.8% in the first three quarters). Among them, the 23Q4 single quarter increased by 55.4% on a low basis, with a year-on-year increase of 2.8 billion yuan. Mainly, profit and loss from changes in fair value increased by 3.4 billion yuan year on year.
4) The cost-revenue ratio (64.8%) increased by about 3.4 pc year on year, and annual business and management expenses increased 7.9% year on year, faster than revenue growth, and dragged down profit performance. Mainly due to rapid deposit growth, savings agency fees increased 10.4% year on year (agent rate decreased by 3 bps to 1.24%, but the average daily balance of proxy savings deposits increased by 12.8%).
By the end of 2023, the average net interest spread of the four major state-owned banks was 1.44%, down from 31% of the 2013-2022 average of 2.08%, triggering agent rate adjustment conditions, which are expected to reduce the cost pressure on Postbank after successful implementation. 1
Scale: Loan growth continues to accelerate, with personal deposit slips rising by 460 billion dollars in the quarter.
1) Asset side: Total assets reached 15.7 trillion yuan (+2.7% month-on-month), and Q4 loans increased by 128.4 billion yuan to 8.1 trillion yuan (+1.6% month-on-month) in a single quarter. The year-on-year growth rate continued to increase 0.9 pc to 13.0% compared to the three-quarter report. Among them, public loans increased by 56.5 billion yuan, notes increased by 4.8 billion yuan, and retail loans increased by 67.1 billion yuan. Of the 161.2 billion retail loans that increased in the second half of the year, personal microfinance loans (operating loans) increased by 70.3 billion dollars, consumer loans and credit cards increased by 51 billion dollars and 25.9 billion dollars respectively, and personal housing loans increased by 13.9 billion yuan.
2) Debt side: Deposits reached $14.0 trillion at the end of the year, and Q4 increased by 462.8 billion yuan (+3.4% month-on-month). Of this, 460.1 billion yuan came from personal deposit contributions, and the share of demand deposits decreased by 0.8pc to 28.9%.
Asset quality: Overall stable, with certain fluctuations in some indicators.
1) From a static perspective, the year-end defect rate was 0.83%, an increase of 2 bps over the previous month. The attention rate was 0.68%, and the month-on-month increase was 6 bps, and the overdue rate (0.91%) decreased by 1 bps month-on-month. The non-performing ratio rose slightly by 2 bps to 0.55% compared to half a year. Among them, the real estate non-performing rate increased by 1.44pc to 2.45%, and other industries were basically stable. The retail defect rate increased by 3 bps to 1.12%, mainly the operating loan non-performing rate is expected to increase by 11 bps to 1.73%.
2) In terms of dynamics, the bad generation rate disclosed by the company was 0.85%, up 3 bps from month to month, but remained at a low level.
3) For the whole year, the company accrued credit impairment losses of 26.1 billion yuan, a year-on-year decrease of 9.2 billion yuan, of which credit was reduced by 10.7 billion yuan, and non-credit was reduced by 1.5 billion yuan over the same period last year (2.3 billion yuan was transferred back in 2022). The year-end provision coverage rate (348%), compared to 2.88% of loans, decreased by 16 pc and 0.06 pc, respectively. Under stable asset quality, fewer provisions released profits.
The wealth management business performed well, with agency fees +24% compared to the same period last year.
1) Wealth management: Retail AUM reached 15.23 trillion dollars at the end of the year, increasing by 1.3 trillion dollars (+9.7%) for the whole year. The structure is still dominated by deposits (accounting for 82%, the same as at the beginning of the year). In terms of customer size, VIP customers (AUM>100,000) and Fujia customers (AUM>500,000) reached 51.48 million households and 4.96 million households respectively, up 8.7% and 16.8% from the beginning of the year. In 2024, the long-term premium payment of new policies by Postbank agents increased 15% year-on-year, and the stock of asset management plans increased 48% compared to the end of the previous year, driving agency fee revenue to still reach 24% year-on-year in weak markets.
2) Online promotion of the incremental expansion of inclusive finance: the balance of inclusive small and micro loans at the end of the year was 1.46 trillion yuan, up 23.7% from the beginning of the year. 90% of the existing inclusive loans were distributed online. At the same time, standardized management was strengthened, and the savings rate for branch approvers reached 60%.
Dividend ratio: The dividend ratio remained at 30% in 2023, and the estimated dividend rate reached 5.5%.
Investment advice: In the short term, the 2024 annual results of the Postbank are still under pressure due to industry trends such as insufficient demand for loans and narrowing interest spreads. However, in the medium to long term, the company has plenty of room for development as a “growing” listed state-owned bank. In terms of scale, the current deposit-to-loan ratio is still low, and it is expected to continue to improve in the future. Furthermore, the asset quality remains steady and excellent, leading the industry, and the margin of safety is high. It is expected to achieve a profit return to mother of 880/932/99.2 billion yuan in 2024-2026, maintaining a “buy” rating.
Risk warning: The macroeconomic downturn has exceeded expectations, the pace of scale expansion has fallen short of expectations, and the progress of institutional reform has fallen short of expectations.