Incident: On July 31, the Bank of Nanjing released its semi-annual report for the year 24, with 24H1 revenue of 26.2 billion yuan, YoY +7.9%; net profit to mother of 11.6 billion yuan, YoY +8.5%; non-performing rate of 0.83% and provision coverage of 345%.

The revenue growth rate increased significantly compared to 24Q1. Bank of Nanjing 24H1's revenue increased 7.9% year over year, up 5.0 pct from 24q1, mainly due to a significant increase in the growth rate of non-interest income. 24H1's non-interest income increased 25.5% year on year, up 7.8 pct from 24Q1. Among them, intermediate income and other non-interest income increased 13.3% and 28.9% year on year respectively. The high increase in other non-interest income was mainly due to a sharp increase in the fair value of transactional financial assets. Profit and loss from changes in the fair value of 24H1 transactional financial assets grew by more than 500% year on year. In addition, the decrease in the negative contribution of net interest income to revenue growth is also an important factor driving the increase in revenue growth. Although 24H1's net interest income fell 6.0% year on year, the growth rate increased by 3.0 pct compared to 24Q1, mainly due to the company maintaining a rapid pace of asset expansion.

In terms of profit, 24H1's net profit to mother increased 8.5% year on year. Compared with 24Q1, the difference between profit growth rate and revenue growth rate narrowed, mainly due to the increase in the year-on-year growth rate of asset impairment losses, or the company increased its provision plan to cope with the rise in the non-performing rate of individual loans.

Investment in public credit has maintained a relatively rapid growth rate. The year-on-year growth rates of 24H1 Bank of Nanjing's total assets, total loans, and total deposits were 11.7%, 13.5%, and 4.2%, respectively, +0.2pct, -1.1pct, and +1.2pct compared to 24q1.

Public loans were the main support for the increase in the credit scale of the Bank of Nanjing. The size of 24H1 loans to public loans and personal loans increased 16.7% and 4.4% year-on-year respectively.

Deposit costs are now at an inflection point, and the decline in net interest spreads has narrowed. The company's 24H1 net interest spread was 1.96%, down 8 BP from '23, and 23 BP compared to 23H1. The actual decline in deposit costs is an important reason for the marginal slowdown in net interest margin decline. Although the trend of deposit regularization still exists, the effects of lowering listing prices and prohibiting “manual interest payments” have begun to show. The company's 24H1 deposit cost ratio has stopped the upward trend since 21, down 8 BP from '23. Asset-side pricing continues to trend downward, with returns on 24H1 loans and bond investments falling more than 20BP from '23.

The main indicators of asset quality remained stable. As of 24H1, the defective rate was 0.83%, the same as at the end of 24Q1. In the forward-looking indicators, the overdue rate was 1.25%, down 6BP from the end of 23, and the attention rate was 1.07%, up 3BP from the end of 24Q1. Risk offsetting capacity remains at an excellent level, with provision coverage of 345% as of 24H1.

Investment advice: The decline in interest spreads is slowing down, and asset quality is stable

The Bank of Nanjing's main exhibitor business is in the economically developed Yangtze River Delta region, and demand for credit is resilient; fixed deposit accounts are relatively high, and debt costs have a lot of room for improvement, which may effectively slow down the decline in interest spreads; although the non-performing personal loan rate has risen marginally, the company has sufficient provisions, and asset quality is expected to stabilize, moderate and improve. EPS is expected to be 1.90, 2.04, and 2.19 yuan respectively in 24-26, and the closing price on July 31, 2024 corresponds to 0.7 times 24-year PB, maintaining the “recommended” rating.

Risk warning: Macroeconomic growth is declining; asset quality is deteriorating; the decline in net interest spreads in the industry exceeds expectations.