Financial Services Association, April 28 (Reporter Cao Yunyi) The quarterly reports of listed banks have been released one after another. Currently, 22 listed banks have disclosed their results for the first quarter of 2024. Judging from the overall trend, the pressure on net interest spreads and the continued decline in median income have become a plight for the banking industry as a whole.

A number of experts told the Financial Federation reporter that the slowdown in revenue growth of some banks is mainly affected by the decline in net interest income. Banks continue to make concessions to the real economy, the decline in returns on financial assets, and the rise in deposit and debt costs. The banking industry will continue to face challenges such as narrowing interest spreads and declining handling fee revenue for quite some time to come. In this context, banks should do a good job of managing debt in different cycles, optimize debt-side structures, and strive to reduce debt-side costs.

Net profit of commercial banks in Yangtze River Delta increased by double digits, few banks increased profits but did not increase revenue

Although the first quarter report has not yet been disclosed, judging from what has already been disclosed, the performance of the urban business sector in the Yangtze River Delta region is outstanding. Not only did revenue and net profit maintain positive growth, but the net profit of many banks also achieved double-digit growth. Net profit attributable to mother of Bank of Hangzhou and Bank of Jiangsu increased by 21.11% and 10.02%, respectively, while net profit to mother of Sunong Bank, Bank of Jiangsu, Bank of Jiangsu, Bank of Jiangyin and Bank of Jiangyin grew by more than 10%.

However, there were also banks that “increased profits without increasing revenue” in the first quarter. As a major state-owned bank, the Bank of Communications was the first to publish a quarterly report. From January to March 2024, the Bank of Commerce achieved operating income of 67.059 billion yuan, a year-on-year decrease of 0.03%; realized net profit (attributable to shareholders of the parent company) of 24.988 billion yuan, an increase of 1.44% over the previous year. Among stock banks, Ping An Bank's profit did not increase revenue. In the first quarter, Ping An Bank's net profit belonging to shareholders of the parent company was 14.932 billion yuan, up 2.3% year on year; operating income fell 14% year on year.

Ping An Bank said that the decline in revenue was due to factors such as continuing to make concessions to the real economy and adjusting the asset structure. Zhou Maohua, a macrofinance researcher at Everbright Bank, pointed out that the slowdown in revenue growth of some banks is mainly affected by the decline in net interest income. Banks continue to make concessions to the real economy, the decline in returns on financial assets, and the rise in deposit and debt costs; at the same time, it is also related to the decline in income from the intermediary business of some banks.

The profit of the Shanghai Agricultural Commercial Bank was disrupted in the first quarter. The bank achieved operating income of 7.085 billion yuan in the first quarter, an increase of 3.69% over the previous year, and realized net profit of 3,552 billion yuan, an increase of 1.48% over the previous year. As can be seen, the bank's net profit increased slightly year-on-year in the first quarter, mainly due to the 72% increase in first-quarter provisions over the same period last year, which somewhat dragged down the profit growth rate.

Guosheng Finance's research team predicts that the Shanghai Agricultural Commercial Bank's mainly non-credit calculation efforts have improved. It is possible that after the implementation of the new risk classification method, the relevant business classification is related to calculation adjustments. This is a short-term disturbance, and profit growth is expected to pick up in the following quarters.

Net interest spreads continue to be pressured, and non-interest income continues to decline

In the first quarter of this year, the market expects banks' net interest spreads to continue to be under pressure, mainly due to factors such as repricing of stock loans, to decline in yield on interest-bearing assets, and the trend of deposit-side regularization will continue on the other side.

Looking at the net interest spread, the net interest yield of the Bank of Commerce was 1.27%, down 6 basis points from the previous year; the net interest spread of Industrial Bank was 1.87%, down 10 basis points from the previous year, and Ping An Bank's net interest spread was 2.01%, down 62 basis points from the previous year.

The Bank of Trade and Communications explained that the decline in net interest yield was mainly on the asset side. Affected by factors such as repricing of stock loans, mortgage interest rate adjustments, and another reduction in LPR with a term of 5 years or more, the yield on interest-bearing assets declined more year-on-year. At the same time, on the debt side, RMB deposits continued the trend of “regularization”, compounded by rising foreign currency deposit costs, the rigidity of the debt structure was strengthened, and the cost ratio of interest-bearing debt increased year-on-year.

Wang Yifeng, chief financial analyst at Everbright Securities, pointed out that against the backdrop of lower quoted interest rates (LPR) in the loan market and lower stock mortgage interest rates, bank asset-side pricing still had significant downward pressure in the first quarter; at the same time, interest rates on deposit payments are still high. Therefore, the narrowing of net interest spreads using banks in the first quarter of this year will still reach 10 basis points to 15 basis points.

Also, it is worth noting that the decline in bank fees and commission income should not be underestimated, but there has been an increase in other non-interest income components.

According to the Bank of Shanghai's annual report, the bank achieved net revenue of 4.915 billion yuan in handling fees and commissions in 2023, a year-on-year decrease of 24.3%; the Bank of Jiangsu's net revenue from fees and commissions in 2023 was 4.276 billion yuan, a year-on-year decrease of 31.6%.

In the first quarter of 2024, the Bank of Hangzhou's net revenue from fees and commissions reached 1.153 billion yuan, a year-on-year decline of 16.4%. The Shanghai Agricultural Commercial Bank's quarterly report shows that of net non-interest income, net income from handling fees and commissions was 644 million yuan, a year-on-year decrease of 23.73%, mainly due to a significant drop in consignment insurance premiums, which led to a decrease in related income.

Bank of China research suggests that this year's processing fee revenue will still be under pressure as a whole, and there are still structural opportunities in some areas. Against the backdrop of lower interest rates on deposits, considering the warming of the capital market, the profitability of wealth management products is relatively attractive, and the bank wealth management business is expected to accept savings for some residents. At the same time, there is still room for growth in wealth management income.

However, in terms of other non-interest net income, the bond market performed well in the first quarter, and bank investment benefited. Industrial Bank achieved net fee revenue of 6.198 billion yuan in the first quarter, down 18.99% year on year, but net non-interest income continued to grow in the first quarter, reaching 20.509 billion yuan, up 2.69% year on year; achieving other net non-interest income of 14.311 billion yuan, up 16.16% year on year, mainly from bond asset investment income.

Net interest spreads will still fall this year, but there is limited room for pressure reduction

At present, the annual reports of listed banks have been released one after another. Many institutions have pointed out that narrowing interest spreads and declining handling fee revenue have become trends facing the banking industry as a whole, but there is limited room for net interest spreads to drop again in the future.

Bank of China research predicts that commercial banks' net interest spreads will continue to decline in 2024, but the decline will gradually narrow. The scale factor of quantitative price compensation is the key to supporting the growth of commercial banks' interest income. Assuming that banks' interest-bearing assets maintain the same growth rate as total assets, net interest income is expected to increase by 4% in 2024. Due to the rapid growth rate of credit investment in the first half of the year, the net interest income growth rate will be higher than the annual level.

Cinda Securities said that banks' net interest spreads are expected to remain under pressure, but currently bank net interest spreads are at a historically low level, and there is limited room for continued pressure reduction. The regulatory authorities have taken into account maintaining reasonable bank profits and net interest spreads. In the future, under the care of policies such as lowering deposit interest rates, the pressure on banks' net interest spreads is expected to be manageable, and the decline is expected to gradually narrow.

“The banking industry will continue to face challenges such as narrowing interest spreads and declining handling fee revenue for quite some time to come. In this context, banks should do a good job of managing debt in different cycles, optimize debt-side structures, and strive to reduce debt-side costs. At the same time, improve management efficiency and reduce management costs. Adopt differentiated and characteristic development strategies through product, service, model and management innovation.” According to the PwC report, banks should face the challenge of narrowing net interest spreads, reduce debt costs, and expand profitability through multiple channels.