Description of the event
Bank of Ningbo released its 2023 annual report. The annual revenue growth rate was 6.4% year on year (5.5% growth rate in the first three quarters), net profit to mother grew 10.7% year on year (12.6% growth rate in the first three quarters), the year-end non-performing rate was 0.76%, and the provision coverage rate was 461.04%.
Incident comments
Q4 Revenue picked up month-on-month, and profit growth declined slightly. Annual revenue increased 6.4% year over year, with net interest income growing at a rate of 9.0% (10.9% in the first three quarters), net handling fee revenue falling 22.8%, continuing to drag down, and investment and other non-interest income growing 15.7% on a low basis in 2022/Q4 to support revenue. Driven by revenue, the net profit growth rate for the whole year fell slightly to 10.7%. The year-on-year growth rate in Q4 was 5.1%. The strength of credit impairment calculations decreased, and the decline in provisions fed back profits.
Retail loans bucked the trend and consumer finance companies continued to gain strength. Loans increased 19.8% for the whole year and 3.0% month-on-month in Q4. Growth was strong in a weak macro environment. Public loans increased 16.8% for the whole year, 3.3% month-on-month in Q4; retail sales bucked the trend and grew strongly by 29.6%, and Q4 increased 7.0% month-on-month. Among retail products, annual mortgage loans grew 35.8% at a low base; personal consumer loans increased by 31.9%, and consumer finance companies continued to contribute an increase of 34.9 billion yuan, accounting for 45% of the annual increase in consumer loans; personal business loans also achieved a high growth rate of 18.4%. It is expected that mortgages and consumer loans will remain the key driving direction in the retail sector in 2024. Total deposits increased by 20.8% for the year, and the share of total demand deposits at the end of June decreased by 3pct to 33% compared to the end of June.
Net interest spreads continued to fall, and Q4 declines narrowed month-on-month. Net interest spread for the whole year was 1.88%. Compared with the previous three quarters, it was 1BP narrower than in the previous three quarters, down 14BP year on year, and the decline in Q4 was less than that of peers. The yield on loans for the whole year decreased by 5BP compared to 2023H1. Among them, the yield on public loans remained stable and the yield on retail loans fell 19BP. The downward pressure on loan yields in 2024 is expected to be less than that of peers, mainly due to the low share of mortgages (7% at the end of 2023), and the region is dominated by Tier 1 and 2. The annual deposit cost rate increased by 7BP compared to 2023H1. Among them, the cost rate for fixed term and current deposits increased, reflecting strong bargaining power for public customers; the cost rate for personal time deposits also increased due to regularization. Currently, the marginal trend of deposit fixed-term deposits in the banking sector has abated. Combined with several cuts in deposit listing interest rates in the past two years, the deposit cost rate is expected to improve in 2024.
Asset quality indicators are still excellent, and the net bad generation rate fluctuates slightly. The year-end non-performing loan ratio was 0.76%, the same as at the end of the third quarter. From a dynamic perspective, the net bad generation rate before write-off for the whole year was 0.95%, up 7 BP from the previous three quarters. Among them, the net bad generation rate in Q4 was 19 BP month-on-month, which is expected to fluctuate mainly due to fluctuations in retail asset quality during the rapid consumer finance exhibition process. The retail loan non-performing ratio at the end of the year was 1.50%, up 2BP from the end of June. Risks in key areas are still low. At the end of the year, the non-performing ratio of real estate to public loans was only 0.10%, and the balance of non-performing loans was only 120 million. Write-off efforts increased throughout the year, credit costs were reduced, and provision coverage fell 19.5pct to 461% at the end of the year, reducing provisions to feed back profits in an environment under pressure on revenue.
The dividend ratio increased slightly. The dividend ratio increased slightly to 16% in 2023 (14.8% in 2022), and the dividend per share increased to 0.6 yuan. Previously, the dividend per share remained at 0.5 yuan for four consecutive years, corresponding to the 2023 dividend rate of 2.8%.
Investment advice: Long-term excellent operating capacity, high margin of safety after valuation adjustment. The annual performance is basically in line with expectations, and the level of asset quality is still excellent. In the long run, it is still a high-quality urban commercial bank with an excellent governance system and a high degree of marketization. In 2024, revenue growth is expected to be 6.4% and net profit growth rate to mother is 10.6%. Currently, the valuation is 0.70x2024PB, 5.1x2024PE. Based on confidence in future development, medium- to long-term valuation still has clear room for repair, maintaining a “buy” rating.
Risk warning
1. The downward pressure on the economy is increasing, and the net interest spread continues to narrow;
2. Asset quality fluctuates, and the non-performing rate has increased markedly.