Incident: In the first three quarters, the company achieved operating income of 50.753 billion yuan (+7.45%, YoY) and net profit attributable to common shareholders of the parent company of 20.707 billion yuan (+7.02%, YoY). At the end of September, the company's total assets were 3.07 trillion yuan (+14.88%, YoY), the non-performing loan ratio was 0.76% (flat, QoQ), and the non-performing loan provision coverage rate was 404.80% (-15.75PCT, QoQ). Bank of Ningbo's net interest spread for the first three quarters was 1.85%, down 4 bps year on year.

Investment in public loans was stronger than seasonal, and personal loans improved compared to the previous two quarters. Q3 Bank of Ningbo's loans maintained strong growth, and their comparative advantage over the industry is still obvious. Structurally, public loans continued to increase markedly year-on-year (less increase in the industry during the same period), reflecting strong regional demand and self-initiative; there was a marked decrease in bill discounts, or because the impulse motivation was weak when general loan investment was better. Personal loans continued to decline, in line with industry trends. There are three main reasons: on the one hand, more personal business loans and consumer loans were invested in the same period last year, and the amount due this year was large; on the other hand, residents' demand for various types of credit was weak; furthermore, companies' access to personal loans may be tightened due to rising credit risk in the industry. On the marginal side, new personal loans in Q3 improved markedly compared to the previous two quarters, or mainly the company seized the peak season (the pace of investment in recent years shows that Q3 is generally the peak season for personal loan investment) and increased investment efforts in response to regulatory guidelines such as promoting consumption, stabilizing real estate, and supporting weak links. The company is located in a region with a solid industry and strong competitiveness in the local market. It is expected that the credit growth rate will maintain its comparative advantage.

Deposits continued to grow rapidly. On the basis that Q2 surpassed the season, Q3 company's absorption of deposits continued to grow at a relatively rapid pace, significantly faster than M2 during the same period. On the one hand, it may continue to benefit from the favorable local export situation, and on the other hand, it may benefit from its pricing advantages in the process of managing “manual interest compensation”. The company achieved rapid growth in deposits in the first three quarters, laying the foundation for the whole year. It is expected that Q4 will still maintain a significant comparative advantage over peers.

Interest rates continued to decline, benefiting from the interest rate base, and the decline in net interest spreads narrowed markedly. Benefiting from a low base, the year-on-year decline in Q3 interest spreads narrowed markedly. The estimated Q3 single quarter interest spread was 1.81%, the same as the previous year. On the asset side, the decline in the interest rate is still quite obvious. The estimated Q3 interest rate was 3.87%, a year-on-year decrease of about 29 bps. On the one hand, due to the fragmentation of the new loan structure (the share of high-yield retail loans has declined) and interest rates on newly issued loans have continued to decline, and on the other hand, due to the obvious repricing effect of bonds (government bonds have been issued vigorously since last year, interest rates have declined significantly, and the proportion of low-interest securities in the portfolio has increased or increased). On the debt side, deposit rigidity improved markedly after multiple rounds of deposit interest cuts. It is estimated that the Q3 interest rate was 2.01%, improving 1BP from month to month. Due to the high base last year, there was a marked decrease of 16 bps over the previous year, which contributed greatly to the narrowing of interest spreads. Factors such as weak retail demand and falling interest rates on LPR and stock housing loans are still putting pressure on interest rates at this stage, but the downward pressure is expected to slow down due to favorable factors such as slowing down repricing and increased macroeconomic policies. On the debt side, in late October, the company implemented a new round of aggressive deposit interest rate cuts along with major banks. The pace of the company's savings collection indicates that interest rates will improve markedly from Q4 this year to the first half of next year.

Due to market influence, intermediary business revenue is still under pressure. The year-on-year decline in Q3 processing fees and commission revenue is still quite obvious. It is expected that it will still be constrained by factors such as fee reduction and concession policies and weak capital market performance. Considering the low Q4 base and the continued increase in macroeconomic risk appetite since the “9.24” New Deal, the decline in revenue is expected to narrow significantly.

Investment returns declined markedly due to market influence. Since the “9.24” New Deal, there has been a marked correction in the bond market, and investment income+fair value change profit and loss have clearly declined from a high level. However, strong growth in other comprehensive income indicates that the performance of other debt investments (FVOIC) is still outstanding. If later realized as investment income, it will greatly drive current profit and loss.

The attention rate continued to rise slightly, and bad disposal remained vigorous. The share of Q3 focused loans increased by 6 bps to 1.08% at the end of Q2, which is in line with industry trends and reflects macro-level pressure. The expected attention rate is mainly disrupted by the business and consumer retail customer base, which is in line with industry trends and reflects pressure on residents' employment and income; it is expected that the quality of public assets is low and stable, reflecting the good resilience of local entities. In terms of dynamics, it is estimated that the bad generation rate (plus write-off, annualized) for the first three quarters was 1.14%, which is high in recent years, but it is slower than in the first half of the year. In terms of bad disposal, the Q3 write-off amount was +73.67% YoY, and the recovery of written off loans was +65.17% YoY. Due to strong write-off efforts, estimates have slowed marginally, and provision coverage has declined further.

The current rise in retail asset risk in the industry is quite common, and subsequent credit costs may still be under pressure. Considering the company's rapid revenue growth and strong provisions, it is expected that it will still be able to maintain excellent asset quality indicators.

Profit forecast and investment advice: Affected by the market, Q3 companies' investment income and commission income are under pressure. Furthermore, the overall impact of the October stock housing loan interest rate, deposit listing interest rate, and LPR adjustments on interest spreads was negative, and we adjusted our profit forecast accordingly. The estimated revenue for 2024-2026 is 67.224, 71.818, and 79.592 billion yuan (the original forecast was 68.042, 74.252, and 83.286 billion yuan), and net profit to mother is 27.515, 29.693, and 31.949 billion yuan, respectively (the original forecast was 27.045, 29.538, and 33.831 billion yuan). The net assets per common share are expected to be 30.24, 33.59, and 37.19 yuan in 2024-2026, corresponding to the closing price of October 29, 0.87, 0.78, and 0.71 times the PB. Bank of Ningbo has a solid regional economy and outstanding professional management capabilities, and revenue is expected to maintain a relatively rapid growth rate. With revenue and provision advantages, the company has the ability to fully cope with the rising pressure of retail risk in the industry. At the industry level, increased debt conversion and increased real estate support policies have clearly allayed market concerns about the quality of bank assets. Based on the above reasons, the company's “buy” investment rating was maintained.

Risk warning: The quality of retail assets in the industry has deteriorated dramatically; net interest spreads have narrowed sharply, leading to a slowdown in revenue.