Recently, ICBC disclosed its report for the third quarter of 2024. The year-on-year growth rates of 24Q1-3 revenue, PPOP, and return to mother profit were -3.82%, -5.28%, and 0.13%, respectively. The growth rates changed by +2.22, +2.9, and +2.02 percentage points from 24H1, respectively. Revenue and profit growth rates improved, and the annualized weighted average ROE was 9.77%. Driven by cumulative performance, scale growth, other non-interest, and provision accruals are the main positive contributions, with interest spreads and cost-to-revenue ratios forming negative contributions.

Core views:

Highlights:

(1) The net interest spread is stable. The average daily net interest spread disclosed by the company for the first three quarters was 1.43%, the same as in the first half of the year. Considering the effects of recent cuts in interest rates on stock mortgages, it is expected that there will still be slight downward pressure on net interest spreads in the fourth quarter, but judging from the trend, the downward pressure will decrease compared to the previous period. Looking at next year, interest spreads are still facing multiple downward pressures, but the decline is expected to narrow.

(2) The non-performing rate is stable, and the provision coverage rate has increased slightly. Benefiting from a good customer base, ICBC's overall asset quality remains stable. The non-performing loan ratio at the end of Q3 was 1.35%, flat from month to month, and remained low in recent years. The non-performing loan provision coverage rate was 220.30%, +1.87pct compared to the previous month, and the overall asset quality was stable.

(3) Steady growth in asset size. Total assets increased 8.7% year-on-year to 48.4 trillion yuan at the end of the third quarter of 2024. The growth rate was slightly higher than at the end of the previous quarter, and growth was more steady. Among them, total loans increased 9.0% year over year, and deposits increased 1.8% year over year. The company's core Tier 1 capital adequacy ratio at the end of the third quarter was 13.95%, not much change from the beginning of the year.

Concern: (1) The impact of “squeezing moisture” on deposits continues, and deposit growth is sluggish. Mainly affected by “squeezing moisture” in financial data, the deposit growth rate declined markedly at the beginning of Q2 this year, and the Q3 deposit growth rate was 1.8%, continuing the downward trend. At the same time, the degree of ICBC deposit regularization increased with the industry in the first half of the year. On the one hand, corporate demand deposits were adversely affected by the “moisture squeeze”; on the other hand, it was due to the fact that the capital circulation of individuals and the enterprise sector was still blocked in the context of weak demand.

(2) Fees and commission income continued to decline significantly. Q3 The decline in processing fees and commission income is still quite obvious. It is expected that it is still mainly affected by factors such as fee reduction policies, weak capital market performance, and slowing consumer consumption. Business rivals such as wealth management, asset management, guarantee commitments, and bank cards are still greatly hampered by renewals. 3Q24's other non-interest income was $59.4 billion, up 17.5% year over year, mainly due to increased earnings from changes in fair value.

Investment advice: As the largest commercial bank in China, ICBC has a solid customer base and outstanding cost advantages. At the same time, ICBC is a high dividend product that can stabilize dividends, and the dividend allocation value is worth paying attention to.

Given that the 24-year performance growth rate was slightly lower than in '23, we forecast a profit growth rate of -1.5%/-3.3% for 24/25. We maintain a “Highly Recommended” rating.

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