On the evening of March 28, 2024, Bank of Qingdao disclosed its 2023 results. In 2023, it achieved operating income of 12.47 billion yuan, YoY +7.1%; net profit to mother of 3.55 billion yuan, YoY +15.1%; weighted average ROE of 10.71%. By the end of 2023, the asset size was 608 billion yuan, the non-performing loan ratio was 1.18%, and the provision coverage rate was 225.96%.

1. Revenue growth rate increased dramatically, and ROE increased.

Revenue in 2023 was $12.47 billion, up 7.1%, up 5.3 percentage points from 3Q23. Among them, interest income was 9.28 billion yuan, up 12.0% year on year, assets maintained rapid growth and interest spreads were stable; net income from handling fees and commission business was 1.59 billion yuan, up 9.8% year on year; and other non-interest income was 1.60 billion yuan, down 16.1% year on year. Net profit to mother was 3.55 billion yuan, a year-on-year growth rate of 15.1%, which is basically the same as 3Q23.

Profitability increased, and the weighted average ROE in 2023 was 10.71%, up 1.76 percentage points year over year.

2. Improved asset structure and stable interest spreads.

The size of assets has maintained a relatively rapid growth rate. By the end of 2023, total assets, loans and deposit amounts were $608, 3001, and 386.1 billion yuan, respectively, up 14.8%, 11.6%, and 13.1% year-on-year, respectively, and 4.6%, 0.9%, and 1.8%, respectively. Public loans increased by 25.4 billion dollars in 2023, mainly in the wholesale and retail industry (129) and leasing and business services (72), and retail loans increased by 5.7 billion yuan, mainly in personal consumer loans (49).

On the debt side, deposits increased by 44.7 billion yuan, of which savings time deposits increased by 40.8 billion yuan, and the trend of deposit fixed-term deposits continued.

Interest spreads are stable. Net interest spreads for the four quarters of 2023 were relatively stable, at 1.85%, 1.84%, and 1.83%, respectively. The full-year interest spread was 7BP higher than in 2022. On the asset side, although the average yield on loans fell 13BP to 4.90% from 2022, the share of loans with relatively high pricing continued to rise, and the average yield on interest-bearing assets fell 5BP to 4.17%. On the debt side, the interest rate on deposits rose slightly by 2BP to 2.23% compared to 2022, but the debt structure improved, the bond cost ratio declined, and the interest-bearing debt cost ratio decreased by 5BP to 2.33% compared to 2022.

3. Asset quality is stable, and capital adequacy ratio has increased slightly.

Asset quality is stable. By the end of 2023, the non-performing loan ratio was 1.18%, slightly up 4BP from 23Q3 and down 3BP from the end of 2022; the interest loan ratio was 0.54%, down 14BP from 23Q3 and 28BP from the end of 2022; the overdue loan ratio was 1.42%, down 10BP from 23H1 and 23BP from the end of 2022. The provision coverage rate was 225.96%, down 28.71 percentage points from 23Q3, up 6.19 percentage points from the end of 2022; the loan ratio was 2.67%, down 23BP from 23Q3.

The capital adequacy ratio increased slightly. By the end of 2023, the core Tier 1 capital adequacy ratio/Tier 1 capital adequacy ratio/capital adequacy ratio were 8.42%/10.10%/12.79% respectively, all slightly higher than 23Q3. According to the company's announcement, under the new capital management measures, the Bank of Qingdao, as a first-tier bank, has increased slightly in its capital adequacy ratio based on static estimates.

Investment advice: Excellent performance and stable interest spreads. Bank of Qingdao is a boutique commercial bank with market-based characteristics. It has good performance, maintained a relatively rapid growth in asset size, stable interest spreads, and stable asset quality. We maintain a “Highly Recommended” rating.

Risk warning: Interest spreads have declined; the economic downturn has exceeded expectations, and asset quality has deteriorated.