Description of the event

Postbank's revenue growth rate for the first half of 2024 was -0.1% (+1.4% in the first quarter), with net interest income growing at +1.8% (+3.1% in the first quarter) and -1.5% in net profit to mother (-1.3% in the first quarter). Asset quality was stable. At the end of the second quarter, the non-performing rate remained flat at 0.84% month-on-month, and provision coverage fell slightly by 1 pct to 326% month-on-month.

Incident comments

Continued positive growth in net interest income is hard to come by. Revenue declined slightly in the first half of the year, which was mainly dragged down by a decline in net revenue from handling fees. At the same time, investment income and exchange gains and losses for the second quarter of last year were high. Net interest income continued to grow positively by 1.8%, benefiting from stabilizing net interest spreads and continuing expansion in loan size. The decline in profits is still affected by the increase in savings agency fees. PPOP has continued to decline year-on-year since last year due to the continuous expansion of deposit scale at postal agency outlets and the rigidity of agency rates. Currently, agency rates have once again triggered a reduction mechanism, and future adjustments will ease the pressure on profitability.

Retail loans and deposits performed significantly better than their peers. Total loans at the end of the second quarter increased 6.3% from the beginning of the period, and 1.6% month-on-month in the second quarter. The growth rates for public, retail, and notes compared to the beginning of the period were +9.9%, +4.9%, and -5.5%, respectively. Among public loans, infrastructure industries such as leasing business and the wholesale and retail industry are growing rapidly. Real estate loans increased 13% compared to the beginning of the period, and are expected to support the construction of projects such as guaranteed housing and urban renewal. All types of retail loans achieved positive growth under pressure. Personal microfinance, mortgages, other consumer loans, and credit cards increased by 10.3%, 1.0%, 9.0%, and 1.8%, respectively, compared to the beginning of the period. Deposits increased by 6.5% in the first half of the year, the highest growth rate among major banks. Mainly the share of public deposits was low and was less affected by manual interest compensation regulations. Demand deposits accounted for 26.7% at the end of the second quarter, down 2.2 pct from the beginning of the period. Due to the high share of personal deposits, regularization is still obvious.

Interest spreads stabilized in the second quarter, and deposit costs continued to decline to benefit. The net interest spread for the first half of the year was 1.91%, only 1BP narrower than the first quarter, and down 10BP from the full year of 2023. The net interest spread level has an advantage among large banks. Loan yields in the first half of the year fell by 24BP to 3.89% compared to the full year of 2023. The yield on public and retail loans decreased by 9BP and 41BP respectively. Due to the high share of mortgages, it was clearly affected by continued mortgage interest rate cuts. Debt costs have improved. The deposit interest rate in the first half of the year decreased by 5 BP to 1.48% compared to the full year of 2023. Currently, the deposit cost ratio is the lowest among listed banks. Among them, the cost ratio for fixed term and personal time deposits decreased by 10 BP and 12 BP, respectively. Due to the high share of time deposits, it also benefits from the trend of continuous decline in interest rates on early deposits.

Fee cuts in agency services are dragging down revenue, and financial management and investment banking businesses are growing rapidly. Non-interest income fell 7.5% year on year, with net handling fee revenue falling 17%. The main agency business revenue fell 64% year over year due to agency insurance fee cuts. The investment banking business increased 49% year over year, and the wealth management business benefited from market conditions, and handling fee revenue increased 21% year over year.

The quality of assets is generally stable, and the rate of bad new generation has declined. The non-performing rate was stable, and the attention rate and overdue rate increased by 10BP and 7BP month-on-month. It is expected to reflect retail risk and stabilize the quality of public loans. The rate of bad new generation in the first half of the year was 0.74%, down 7BP from the first quarter and 11BP from the full year of 2023. The bad generation rate of retail loans decreased by 4BP to 1.22% compared to the full year of 2023, and mortgage loans, other consumer loans, and credit cards all declined; the bad generation rate of personal microfinance loans increased by 5 BP, and the non-performing rate increased by 15 BP to 1.88% from the beginning of the period. Fluctuations in the asset quality of operating loans are common to the industry.

Investment advice: The Postbank has long had room for growth in the county market. The debt side continues to benefit from declining interest rates on deposits, and the quality of assets is stable. In 2024, the revenue growth rate is expected to be +0.9%, and the net profit growth rate to the mother is +0.4%, corresponding to a valuation of 0.55x2024PB. The dividend rate for A shares in 2023 is 5.64%. Currently, the dividend ratio is the highest among major A-share banks, maintaining a “buy” rating.

Risk warning

1. The downward pressure on the economy increased, and net interest spreads continued to narrow; 2. Asset quality fluctuated, and the non-performing rate increased markedly.