On the evening of March 29, 2024, Bank of Wuxi disclosed its 2023 results. In 2023, it achieved operating income of 4.5 billion yuan, YoY +1.28%; net profit to mother of 2.2 billion yuan, YoY +9.96%; weighted average ROE of 11.48%. By the end of 2023, the asset size was 235 billion yuan, the non-performing loan ratio was 0.79%, and the provision coverage rate was 522.57%.
1. The revenue growth rate is steady, and ROE is declining.
Revenue in 2023 was 4.54 billion yuan, up 1.28% year on year. The growth rate was steady and slightly higher by 0.39 percentage points compared to 3Q23. Among them, net interest income was $3.46 billion, down 0.78% year on year, mainly affected by the narrowing of interest spreads; of non-interest income, net income from handling fees and commissions was 130 million yuan, down 41.82% year on year, and other non-interest income totaled 950 million yuan, up 23.4% year on year. Net profit to mother grew by 9.96%, down 6.18 percentage points from 3Q23. The weighted average ROE for 2023 was 11.48%, down 1.53 percentage points year over year.
2. The scale of credit has maintained a relatively rapid growth, and the decline in interest spreads has narrowed.
The scale of credit has continued to grow at a relatively rapid pace. By the end of 2023, assets, loans, and deposits were $2350, 1430, and 194.1 billion, respectively, up 11.0%, 12.4%, and 11.2% year-on-year, respectively. Loans increased by 14.4 billion dollars throughout the year, mainly to the public sector's manufacturing, leasing and business services, wholesale and retail industries, and construction. On the debt side, deposits increased by $21.4 billion in 2023, of which savings time deposits contributed $19.1 billion.
The decline in interest spreads has narrowed. The 2023 net spread was 1.64% and the net spread was 1.39%, slightly down 2BP from 1H23 and 17BP from 2022, respectively. We estimate that on the asset side, the yield on retail loans and loans to the public was 5.04% and 4.27%, respectively, down 29 and 17BP from 2022, respectively, and retail loan yields declined even more. On the debt side, the interest rate on savings term deposits decreased by 21BP compared to 2022, but due to the continuation of the deposit fixed-term trend, the overall deposit interest rate only dropped by 1BP to 2.29%.
3. Excellent asset quality and increased capital adequacy ratio.
Asset quality remains excellent. By the end of 2023, the non-performing loan ratio was 0.79%, slightly up 1BP from 23Q3 and down 2BP from the beginning of the year; the focus loan ratio was 0.42%, down 1BP from 23Q3 and up 11BP from the beginning of the year; the overdue loan ratio was 0.66%, down 2BP from 23H1 and down 10BP from the beginning of the year. The provision coverage rate was 522.57%, which remained high, and the provision was sufficient; the loan ratio was 4.11%, a slight decrease of 14BP from 23Q3.
Increased capital adequacy ratio. By the end of 2023, the core Tier 1 capital adequacy ratio/Tier 1 capital adequacy ratio were 11.27%/12.52%/14.41% respectively, up 24BP from 23Q3 respectively. The core Tier 1 capital adequacy ratio is 3.77 percentage points higher than the regulatory bottom line requirement, and remains at a high level. Since 2022, Great Wall Life has continued to increase its holdings in the Bank of Wuxi and converted its holdings into shares in Wuxi. It is optimistic about the future development of the Bank of Wuxi. As of January 19, 2024, Great Wall Life held 140 million shares of the Bank of Wuxi, accounting for 6.36% of the total share capital.
Investment advice: Maintain rapid asset growth and sufficient reserves. The regional economy of the Bank of Wuxi is well developed. The profit growth rate has slowed slightly, the asset structure has improved, the decline in interest spreads has narrowed, asset quality continues to be excellent, and provisions are sufficient.
We maintain a “Highly Recommended” rating.
Risk warning: Interest spreads have declined; the economic downturn has exceeded expectations, and asset quality has deteriorated.