On the evening of April 19, 2024, the Bank of Hangzhou disclosed its annual report for the year 23 and quarterly report. In 2023, it achieved operating income of 35.02 billion yuan, YoY +6.33%, net profit of 14.38 billion yuan, YoY +23.15%, weighted average ROE of 15.57%; 24Q1 achieved operating income of 9.76 billion yuan, YoY +3.5%, net profit to mother of 5.13 billion yuan, YoY +21.1%, and an annualized weighted average ROE of 19.96%. As of the end of March 2024, the asset size was 1.92 trillion yuan, the non-performing loan ratio was 0.76%, and the provision coverage rate was 551.23%.
1. Maintain a good level of performance and increase ROE.
Revenue growth in 2023 was 6.3%, up 1 percentage point from 3Q23; net profit growth rate to mother was 23.2%, slightly slower than 3Q23. The growth rates of 1Q24 revenue and net profit to mother were 3.5% and 21.11%, respectively, down 2.83 and 2.04 percentage points from 2008. The profit growth rate has slowed slightly, but it has maintained a high growth rate of more than 20%. Q1 revenue performance was good, mainly due to declining interest rates on bonds. Investment income, fair value change profit and loss, and exchange gain/loss increased by 39% year on year, while net interest income and middle income declined by 1.88% and 16.36% year on year, respectively.
Thanks to high profit growth, the weighted average ROE in 2023 was 15.57%, up 1.48 percentage points year on year, and the annualized weighted average ROE for the first quarter of 2024 was 19.96%, up 1.08 percentage points year on year.
2. Good start, deposits and loans increased, and interest spreads were under pressure.
Good start, and there was a high increase in loans. As of the end of March 2024, the size of assets, loans and deposits was 1.92, 0.87, and 1.11 trillion yuan, respectively, up 13.0%, 16.1%, and 11.0% year-on-year, respectively, and 4.1%, 7.9%, and 6.6%, respectively. The loan scale increased by 63.7 billion yuan in the first quarter, an increase of 15.5 billion yuan over the same period last year. The opening performance was good, mainly due to contributions to public loans.
Interest spreads are under pressure. The net interest spread in 2023 was 1.50%, down 19BP from the full year of 2022 and 6BP from 23H1. The decline narrowed slightly, and 7BP lower than the average of commercial banks in the city. The yield on interest-bearing assets was 3.87%, down 19BP from 2022, with the average yield on loans falling 36BP to 4.6%. On the debt side, the interest-bearing debt cost ratio was 2.28%, down 4BP from 2022, with the deposit interest rate falling 7BP to 2.19%.
According to our estimates, the 1Q24 net interest spread was 1.41%, down 9BP from 2023.
3. Adequate provisions and increased capital adequacy ratio.
Asset quality remains excellent, and provisions are sufficient. As of the end of March 2024, the non-performing loan ratio was 0.76%, the same as at the end of 2023; focus on the loan ratio of 0.52%, a slight increase of 12BP from the end of 2023; the overdue loan ratio was 0.67%, a slight increase of 4BP from the end of 2023. As of the end of March 2024, the provision coverage rate was 551.23%, a slight decrease of 10.19 percentage points from the end of 2023, but remained at a high level with sufficient provisions; the loan ratio was 4.20%, down 5 BP from the end of 2023.
Increased capital adequacy ratio. The Bank of Hangzhou calculated risk-weighted assets in the first quarter of 2024 in accordance with the new capital management measures, and the overall capital adequacy ratio increased. As of the end of March 2024, the core Tier 1 capital adequacy ratio/Tier 1 capital adequacy ratio/capital adequacy ratio were 8.46%/9.90%/12.70%, respectively.
Increased dividend rate. The 2023 dividend amount is 0.52 yuan/share, up 0.12 yuan/share from 0.4 yuan/share in 2022; the dividend rate is 22.52%, and the dividend rate is 0.7 percentage points higher than in 2022.
Investment advice: Credit has achieved a “good start”, and the performance continues to be beautiful. The Bank of Hangzhou is based in Zhejiang, has excellent fundamentals, maintained rapid growth in asset size, excellent asset quality, and sufficient reserves. In view of the Bank of Hangzhou's high growth, we maintain a “Highly Recommended” rating.
Risk warning: Financial concessions have narrowed, bank interest spreads have narrowed; the economy is declining, and asset quality has deteriorated.