Recently, the Bank of China disclosed its report for the third quarter of 2024. The year-on-year growth rates of 24Q1-3 revenue, PPOP, and profit to mother were 1.64%, -2.4%, and 0.52%, respectively. The growth rates changed +2.31, +0.26, and +1.76 percentage points from 24H1, respectively. Revenue and profit growth rates all changed from negative to positive. Driven by cumulative performance, growth in scale, other non-interest, provision accruals, and effective tax rates are the main positive contributions, while interest spreads are the main negative contributions.

Core views:

Highlights: (1) The performance growth rate changed from negative to positive, and the positive contribution of non-interest income increased significantly. In the first three quarters of 2024, the Bank of China's revenue and profit growth rates both turned positive, at 1.64% and 0.52%, respectively. Looking at the revenue split, net interest income was 336 billion yuan, YoY -4.81%; net non-interest income was 142.4 billion yuan, up 20.99% year over year, up 15 percentage points from the interim report. Among them, the net fee revenue decline narrowed by 3.7 pct to 3.9% compared to 24H1, and the positive contribution of non-interest income increased significantly.

(2) The overall quality of assets is stable. The company's non-performing loan ratio at the end of the third quarter was 1.26%, up 2 BP from the end of the second quarter and down 1 BP from the beginning of the year; the provision coverage rate at the end of the third quarter was 198.86%, down 2.83 pct from the end of the second quarter, up 7.20 pct from the beginning of the year. It is estimated that the net generation rate of bad net generation in 3Q24 decreased by 1BP to 0.64% compared to the interim report.

Overall, the quality of the company's assets remains stable.

(3) Increased capital adequacy ratio. The capital adequacy ratio at the end of September and the core Tier 1 capital adequacy ratio were 19.01% and 12.23% respectively, compared with +0.10pct and +0.20pct at the end of June, consolidating the capital level. Recently, the Ministry of Finance announced that it plans to raise capital through channels such as issuing special treasury bonds and supplement the core tier 1 capital of major banks. If the capital injection is implemented, it is expected to leave capital space for major banks to strengthen their services to the real economy.

Concern: (1) Decline in the growth rate of interbank assets. At the end of the third quarter, the Bank of China's interest-bearing asset growth rate fell 2.3 pct to 7.7% from the end of the previous quarter; among them, the year-on-year growth rates of loans, investment assets, and interbank assets were 8.55%, 14.88%, and -15.88%, respectively, and the growth rates changed by -1.2, 4.9, and -25.9 pcts respectively from the end of the previous quarter.

(2) Interest spreads decreased by 3 bps compared to 1H24. The company disclosed a net interest spread of 1.41% in 1-3Q, down 3 bps from 24H1 and 23 bps from the same period last year. Mainly affected by the decline in asset-side returns, the US dollar's entry into a cycle of interest rate cuts has also weakened the contribution of foreign currencies to the Group's net interest spreads. Looking ahead, factors such as lower interest rates on stock mortgages and multiple rounds of LPR cuts during the year will still suppress domestic asset returns, but falling debt costs will help hedge interest spreads to a certain extent.

Investment advice: The overall fundamental performance of the company is relatively stable, with outstanding internationalization advantages. The three-quarter performance growth rate changed from negative to positive. We maintain the “Highly Recommended” rating.

Risk warning: Financial concessions, falling interest spreads; steady growth policies fall short of expectations, and economic recovery falls short of expectations.