1H24's revenue growth rate increased slightly, and the interest business performance was impressive. 1H24 Bank of Ningbo's revenue and net profit attributable to mother were +7.13% and +5.42%, respectively, compared with the 1Q24 growth rates of +1.35 and -0.87 pct, respectively. Net interest income was +14.75% year-on-year, and the growth rate was higher than 1q24+2.57pcts. The company's interest business maintained steady growth higher than that of its peers. Net income was -24.90% year-on-year. Capital market fluctuations suppressed residents' wealth management needs, declining investor risk appetite, and fee reduction and concession policies affected the growth of the CCI business. Other non-interest income was +2.52% year-on-year, maintaining a slight positive growth trend. The growth rate declined slightly from 1Q24 (2.97%). The main contributing factor was the shift from net investment income to net income from changes in fair value (+16.03% year over year). The cost-revenue ratio was 32.77%, up from 1Q24 (31.53%), but it is still at a low level since 2018. The results of cost reduction and efficiency are remarkable, supporting profit growth.

The high increase in loans is still the main driver on the asset side. The total assets, interest-bearing assets, and loan size of the Bank of Ningbo increased by +16.67%, +18.03%, and +20.59% year-on-year respectively for both public and retail sales. The increase in scale was mainly driven by high loan growth. Although the loan size growth rate in the second quarter declined from the first quarter (vs 1Q24 +24.8%), it remained at the leading level of the industry. Looking at the loan structure, 1H24 loans to the public (including discounts) and personal loans added a net increase of 115.4 billion and 16 billion, respectively, with a year-on-year increase of +24.30% and +18.64% respectively. Both public and retail investments increased in the second quarter. Among them, retail loans performed well compared to peers, and achieved a high growth rate in the context of the industry generally facing insufficient retail demand. 1H24 personal consumer loans, operating loans, and mortgage loans increased by +23.75%, +8.06%, and +13.7%, respectively. Among them, consumer loans were the main retail growth engine of Bank of Ningbo.

Deposit derivation and savings capacity is strong. The share of personal time deposits decreased by 1H24. Bank of Ningbo's total liabilities, interest-bearing liabilities, and deposit size increased by +16.44%, +12.92%, and +18.72% year-on-year respectively, and the share of deposits in interest-bearing liabilities continued to increase. In terms of deposit structure, 1H24 registered net increases of 217.5 billion and 68.4 billion yuan in public and personal deposits respectively, +17.48% and 29.52% year-on-year respectively. The scale of new deposits made in half a year was far greater than the size of new loans, and the ability to collect savings remained strong. After regulations prohibited “manual interest payments” on deposits, Bank of Ningbo's debt-side advantage became even more prominent. The share of public and personal deposits was basically the same as at the end of the previous year, at 73.84% and 26.16%, respectively. Among them, the share of personal time deposits fell from 20.87% at the beginning of the year to 20.73%, and the trend of high growth in savings deposits has abated somewhat. Deposits and loans increased by 1.53pcts to 75.51% compared to 1Q24.

The decline in net interest spreads was small. The decline in debt-side costs boosted 1H24 Bank of Ningbo's net interest spread slightly by 3 bps to 1.87% compared to 1Q24, and fell 14 bps to 2.17% year over year under the new net interest spread (Bank of Ningbo 1H24 interest spread adjustment excludes interest payment costs corresponding to “investment income” during the holding period of transactional financial assets in “interest expenses”). The resilience of interest spreads is better than that of urban commercial banks, and is far ahead of peers after the absolute value was restored. The yield on interest-bearing assets decreased by 11 bps to 4.05% from 2023A, and the cost ratio of interest-bearing debt decreased by 3 bps to 2.12% compared to 2023A. The decline in debt-side costs boosted 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 show a structural recovery ahead of the rest of the country. Under the combined effects of factors such as continued decline in market interest rates and increased competition for high-quality assets, 2H24 interest spreads are still facing downward pressure, but as the effects of deposit restructuring and listed interest rate adjustments are further revealed, the decline is expected to subside.

The overall quality of assets is stable, and the end-of-line risk of individual loans has increased slightly

1H24 Bank of Ningbo had a non-performing ratio of 0.76%, which remained flat for 6 consecutive quarters, and asset quality remained stable. The attention rate increased 28 bps to 1.02% from 1Q24. The provision coverage rate was 420.55%, down 11.08pcts from 1Q24, and risk offsetting capacity is still ahead of peers. Credit impairment losses were accrued at 7.162 billion, of which loan impairment losses were accrued at 6.705 billion and write-off of 6.789 billion (vs 1H23, 6.282 billion, write-off 3.55 billion). Looking at the year-on-year period, the accrual increase was slight, and the write-off margin increased significantly. The non-performing ratio for personal loans increased by 17 bps to 1.67% compared to 2023A, and the non-performing ratio for public loans decreased by 4 bps to 0.25% compared to 2023A. Among them, the non-performing rates of personal operating loans and personal consumer loans are 3.04% and 1.56% respectively. It is expected to be mainly due to the impact of the differentiated credit granting strategies of Ningyin Consumer Finance and the Retail Big Data Credit Department. Among public loans, the quality of wholesale and retail loan assets improved markedly. The non-performing rate decreased by 8 bps to 0.39% compared to 2023A, and the risk control capability advantage remained industry-leading.

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. Based on the semi-annual report's fine-tuning profit forecast assumptions, we expect the company's revenue to increase 7.85%/6.85%/6.19% year on year in 2024/2025/2026, respectively, and net profit to mother will increase 10.22%/9.53%/9.06% 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.