The 1Q24 revenue growth rate declined slightly, and the interest business performance was impressive. Bank of Ningbo's revenue and net profit to mother in 1Q24 were +5.78% and +6.29%, respectively, compared with -0.62% and -4.27pcts compared to 2023A. The revenue growth rate declined month-on-month in the first quarter. Among them, net interest revenue grew by +12.18% year-on-year, and increased by 4.19 and 8.09pcts (vs 1Q23 YoY +7.99%, 4Q23 YoY +4.09%), respectively, mainly contributed by the increase in net interest spreads. Net income was -22.84% year-on-year, continuing the downward trend in wealth management in 2023, which dragged down revenue. Other non-interest-bearing businesses were +9.95% YoY, and the growth rate declined slightly from 2023A. The main contributing factor was the change in net income from fair value changes to investment income (+39.52% YoY), or related to continuing strong bonds in the first quarter and the financial investment business proactively carried out take-profit operations (-11.75% of transactional financial assets). The cost-revenue ratio was drastically reduced to 31.53% (vs 2023A 38.99%), the lowest value in a single quarter since 2018. The results of cost reduction and efficiency were remarkable, supporting profit growth.
Good start, loan investment trends are good, and prosperity has increased marginally
In 1Q24, Bank of Ningbo's total assets, interest-bearing assets, and loan size increased by +14.35%, +14.25%, and +24.8%, respectively. The loan boom increased marginally, and the trend was good under the high base of successful investment (vs. 1Q23 +13.82%, 13.87%, and +18.29%, respectively). Looking at the loan structure, there was a net increase of 96.5 billion yuan and 13.7 billion yuan in 1Q24 in a single quarter, with a year-on-year increase of +22.32% and +27.31% respectively. Good start investment was mainly supported by the public sector, but retail loan investment remained strong compared to the same industry, and is expected to contribute mainly to personal consumer loans and personal operating loans (Bank of Ningbo personal consumer loans +31.9% year on year in 2023).
The increase in deposit size was much higher than that of loans. Bank of Ningbo's total debt, interest-bearing debt, and deposit size increased by +13.89%, +14.3%, and +15.23% year-on-year respectively in 1Q24, and the share of deposits in interest-bearing liabilities continued to rise. Looking at the loan structure, there was a net increase of 193.8 billion yuan and 59.9 billion yuan in 1Q24 deposits for public and personal deposits respectively, +8.94% and 35.35%, respectively. The scale of new deposits in the first quarter was far greater than the size of new loans, but the high increase in deposit size did not significantly slow down interest spreads, or due to the strong comprehensive management capabilities of Bank of Ningbo customers, the new public deposits were mainly current settlement deposits and short-term time deposits.
Deposits and loans fell 5pcts month-on-month to 73.98%.
Net interest spreads have rebounded steadily, and there is a boost on both sides of the balance
Bank of Ningbo's net interest spread rose 2bps to 1.9% in 1Q24 compared to 4Q24. Interest income and interest expenses were +15.92% and +19.14%, respectively. The growth rate of interest income was slightly higher than the growth rate of the size of interest-bearing assets. A slight increase in the share of asset-side high-yield loans and a slight decline in debt-side costs are expected to support interest spreads. The Bank of Ningbo is deeply involved in regions with active private economies. Demand for financing is strong, financial institutions are fully competitive, and interest rates on new loans are expected to rise structurally ahead of the rest of the country. Due to a combination of factors such as declining market interest rates and LPR repricing, it is expected that 2-4Q24 interest spreads will still face downward pressure, but the decline in interest spreads is expected to subside throughout the year.
Overall asset quality is stable, and risk compensation capacity remains leading
In 1Q24, Bank of Ningbo had a non-performing ratio of 0.76%, which remained flat for 5 consecutive quarters, and asset quality remained stable. The attention rate increased 9bps to 0.74% from 4Q23. The provision coverage rate is 431.63%, down 29.41 bps from 2023A, and risk compensation capacity is still among the best in the industry. Credit impairment losses were accrued at $3,07 billion, of which loan impairment losses amounted to $3.22 billion and write-off of $3.18 billion (vs1q23 accrued at $3.38 billion, write-off of $1.98 billion). Compared with the year-on-year, the accrual margin remained flat, and the write-off margin increased significantly, mainly due to the upward impact of bad generation. Overall, the impact of some risk reduction in personal consumer loans and personal operating loans on asset quality is manageable.
Investment advice
The Bank of Ningbo is deeply involved in Zhejiang and surrounding economically developed regions. It has a clear customer base position and significant competitive advantage in the market segment. The core management team is stable, strategic communication is efficient, and the corporate governance mechanism is difficult to replicate and sustainable. Diversified financial service capabilities are scarce, risk control capabilities are solid, and asset quality remains excellent. The current phased pressure on performance is mainly affected by factors common to the industry, such as weak economic recovery and insufficient demand for effective credit. The company has a complete license, and the collaborative value of consumer finance, fund, financial management, and financial leasing subsidiaries is expected to be further unleashed in the future. We expect the company's revenue to increase 7.16%/6.66%/5.98% year on year in 2024/2025/2026, respectively, and net profit to mother will increase 7.94%/8.1%/8.81% year on year, respectively, maintaining the “buy” rating.
Risk warning
Interest rate risk: Market interest rates continue to decline, competition for high-quality assets intensifies, and interest spreads narrow.
Market risk: The sharp decline in macro and regional economies has led to a deterioration in asset quality and a sharp increase in defects.
Business risk: Economic growth falls short of expectations, and a sharp drop in financing demand is dragging down credit growth.