① Today, Bohai Bank disclosed its 2023 annual report. The bank's net interest spread fell 0.36 percentage points year-on-year at the end of last year, plummeting from 1.50% to 1.14%. ② The continued reduction in LPR last year had a major impact on the net interest spreads of all banks. Bohai Bank's “worst” net interest spread may be related to the bank's decline in average loan yield and relatively high debt-side deposit costs due to insufficient demand for effective credit on the asset side of the bank.
Financial Services Association, April 23 (Reporter Peng Kefeng) What do you think of a bank's ability to operate continuously? Net interest spread is definitely a key indicator.
This evening, Bohai Bank revealed its 2023 annual report. According to the data, the bank's net interest spread at the end of last year fell by 0.36 percentage points from the end of 2022, plummeting from 1.50% to 1.14%. According to Wind data, this level has set a new low for all listed banks (including A shares and H shares) that have published data so far.
In response, a brokerage banking analyst told the Finance Association reporter that objectively, the continued reduction in LPR last year had a major impact on the net interest spreads of all banks. Bohai Bank's “worst” net interest spread may be related to the decline in average loan yield and the relatively high cost of debt-side deposits due to insufficient demand for effective credit on the asset side of the bank.
1.14% “worst” net interest spread
On December 31, 2005, Bohai Bank was formally established, becoming the youngest of the 12 domestic stock banks. In July 2020, Bohai Bank was listed in Hong Kong. So far, it has been less than 4 years.
According to its 2023 annual report, Bohai Bank achieved operating income of 24.997 billion yuan last year, a year-on-year decrease of 5.55%; net profit of 5.81 billion yuan, a year-on-year decrease of 16.81%. More critical data is that Bohai Bank's net interest spread at the end of last year was 1.14%, a sharp drop from 1.5% in the previous year.
According to Wind data, among the joint stock banks that have published their annual reports, eight banks, including Ping An Bank, China Merchants Bank, Industrial Bank, China CITIC Bank, Everbright Bank, Minsheng Bank, and Bohai Bank, had very different net interest spreads last year. Bohai Bank ranked first in the bottom.
Specifically, Ping An Bank, China Merchants Bank, Zheshang Bank, Industrial Bank, China CITIC Bank, Everbright Bank, and Minsheng Bank last year had net interest spreads of 2.38%, 2.15%, 2.01%, 1.93%, 1.78%, 1.74%, and 1.46%, respectively. Bohai Bank's net interest spread was 1.14%, clearly lagging behind its peers.
Even compared to major A-share listed banks, Bohai Bank's net interest spread is the penultimate of the 24 banks that have published annual reports. Among them, the closest to Bohai Bank is Bank of Communications (1.28% net interest spread). Notably, out of 24 banks, 7 banks still had net interest spreads above 2% last year.
A Financial Services Association reporter noticed that according to Bohai Bank's annual report, as of the end of 2023, Bohai Bank's non-performing loan ratio was 1.78%, up 0.02 percentage points from the end of 2022. Furthermore, by the end of 2023, the bank's real estate industry's non-performing rate was 3.65%, up 0.78 percentage points from 2.87% at the end of 2022.
Analysts say banks' net interest spreads are too low or affect their resilience to risk
Judging from last year's data, although the net interest spreads of many listed banks have declined significantly compared to last year, the “worst” net interest spreads of Bohai Bank are still surprising.
A Financial Services Association reporter noticed that according to the official website of Bohai Bank, the bank adjusted the listing interest rate for RMB deposits on December 25, 2023. However, compared to other stock banks, Bohai Bank's overall deposit interest rate is still high. According to the information after the previous round of adjustments, Bohai Bank's interest rates for three-month, half-year, one-year, two-year, three-year, and five-year deposit products were 1.23%, 1.49%, 1.65%, 1.90%, 2.30%, and 2.30%, respectively, while interest rates for two-year, three-year, and five-year deposits of other stock banks were mostly 1.80%, 2.00%, and 2.05%. This shows that in terms of collecting reserves, it is more expensive for Bohai Bank to have other major stock banks.
The analyst mentioned above believes that if the net interest spread continues to decline, it will affect the bank's net profit level, which in turn will affect the endogenous supplementation of bank capital, and ultimately test its ability to withstand risk. Because for banks, losses revealed by some non-performing assets require a certain net interest spread from surplus to make up for them.
The Financial Services Association reporter also noticed that on April 7, the State Financial Supervisory Administration just disclosed its approval for Bohai Bank to issue capital instruments. The supervisory authorities agreed that Bohai Bank would issue a capital instrument of 15 billion yuan, in the form of secondary capital bonds. According to Bohai Bank's announcement, all of the funds raised in this bond will be used to supplement secondary capital after deducting issuance fees.