Core views
In the first quarter, Bank of Ningbo increased its investment efforts and achieved rapid growth in scale. On the price side, benefiting from maturing repricing of high-cost deposits, net interest spreads continued to rise month-on-month under improved cost pressure, supporting net interest income to achieve industry-leading growth levels. However, the performance was affected by the high base for the same period last year, and the growth rate declined slightly. Looking ahead to the whole year, it is expected that Bank of Ningbo's revenue will continue to maintain a growth rate of more than 5%. At the same time, benefiting from its excellent asset quality and strong reserve base, the performance growth rate will remain steady.
occurrences
On April 29, the Bank of Ningbo announced its 2024 quarterly report. 1Q24 achieved operating income of 17.509 billion yuan, up 5.8% year on year (2023:6.4%), and realized net profit to mother of 7.013 billion yuan, up 6.3% year on year (2023:10.7%). The 1Q24 defect rate was 0.76%, the same quarter-on-quarter; the 1Q24 provision coverage rate fell 29.4pct quarter-on-quarter to 431.6%.
Brief review
1. Net interest income led the industry in terms of growth, and revenue remained steady. Bank of Ningbo achieved revenue of 17.509 billion yuan in 1Q24, an increase of 5.8% over the previous year. In the first quarter, Bank of Ningbo actively grasped investment opportunities and adopted a forward investment strategy. The loan size increased sharply year over year, compounded by a further increase in net interest spreads. Its net interest income increased sharply by 12.2% year on year, leading the industry in growth rate, and supported Bank of Ningbo's revenue growth rate in the first quarter. Affected by the integration of banking insurance channels and the reduction of various rates, the Bank of Ningbo's revenue was under pressure. 1Q24 decreased 22.8% year-on-year. In terms of other non-interest income, thanks to the outstanding performance of the bond market, Bank of Ningbo's fair value changes increased sharply by 120.89% year on year, but due to exchange rate fluctuations, its net exchange profit and loss increased 129.5% year on year, dragging down the growth of other non-interest income.
After deducting non-performance, the growth rate exceeded double digits, contributing the most to scale growth. Bank of Ningbo achieved net profit of 7.013 billion yuan in 1Q24, an increase of 6.3% over the previous year. Due to the high base of the performance scale after accounting for non-recurring profit and loss in the same period last year, the Bank of Ningbo's performance growth rate slowed compared to 2023. After deducting non-recurring profit and loss, its net profit to mother increased 10.08% year on year. In terms of performance attribution, the increase in scale made a positive contribution of 18.1%, while the narrowing of interest spreads and the reduction in revenue had a negative impact on profits of 10.5% and 2.6%, respectively, and dragged down performance growth.
Looking ahead to 2024, relying on the operating advantage of “big banks can't do well, small banks can't do it” and strong credit demand in the Yangtze River Delta region, it is expected that Bank of Ningbo's size growth rate will remain high. Benefiting from the upward month-on-month recovery of net interest spreads, the revenue growth rate is expected to continue to be at the leading level in the industry. At the same time, Bank of Ningbo has excellent asset quality and a strong reserve base, which will guarantee steady growth in performance.
2. Bank of Ningbo's 1Q24 net interest spread increased by 2 bps compared to 2023, and increased 7 bps to 1.90% quarter-on-quarter, further continuing the improvement trend.
On the asset side, focus on the public, actively advance investment, and asset pricing shows resilience. In an environment where demand for public credit was strong and pricing was better in the first quarter, Bank of Ningbo upheld the principles of early investment and early return, and increased investment efforts. The size of public loans increased sharply by 13.2% from quarter to quarter, and the share of loans rose 2.2 pct to 54.9% from the beginning of the year, driving the total loan size to 8.7% month-on-quarter, and the share of assets increased by 1 pct to 47.2% from the beginning of the year.
Assuming that Bank of Ningbo's credit growth this year is the same as last year, Bank of Ningbo added more than 50% of new loans in the first quarter, and the trend of forward investment is obvious. With strong support from public credit investment, Bank of Ningbo's 1Q24 yield on interest-bearing assets (estimated value) fell slightly by 3 bps to 3.59% from quarter to quarter, and pricing is extremely resilient.
On the debt side, deposit repricing dividends have continued to be released, and debt costs have improved markedly for public settlement users. In terms of cost, Bank of Ningbo's 1Q24 interest-bearing debt cost (estimated value) fell 11 bps to 2.12% from quarter to quarter. It is expected to be mainly due to repricing of some high-cost deposits at maturity, and cost pressure will be greatly reduced as dividends continue to be released, which is the main support for interest spreads. As a bank that has been serving local import and export enterprises for a long time, Bank of Ningbo benefited from the steady performance of import and export scale in the first quarter. The volume of corporate deposits increased sharply by 16.8% from quarter to quarter, and the share of corporate demand deposits is expected to rise 16.2% quarterly. The share of debt rose 5.6 pct to 68.0% from the beginning of the year. The continuous optimization of its debt structure has laid a solid foundation for further reduction of its cost pressure.
3. The quality of assets is excellent, and the provision coverage rate remains above 400%. The Bank of Ningbo's 1Q24 non-performing rate remained flat at 0.76% quarter-on-quarter. In addition, the write-off defect generation rate (estimated value) fell 26 bps to 1.0% from quarter to quarter. The intensity of write-off and disposal is still relatively high. It is expected mainly to deal with new defects in the first quarter ahead of time. In terms of forward-looking indicators, the 1Q24 attention rate rose 9 bps to 0.74% from quarter to quarter. It is expected mainly to be the timely exposure of related risks after the withdrawal of the epidemic support policy.
The 1Q24 provision coverage rate fell 29 pcts from quarter to quarter to 431.63%, and the absolute value remained high. Considering that Bank of Ningbo subsidiaries Ningyin Consumer Finance and Yongying Leasing invested heavily in the first quarter of this year and the fourth quarter of last year, they are expected to be the bank's most important credit investors, and there has been a certain drag on provision coverage due to misalignment between calculation strength and parent bank. However, considering that Bank of Ningbo subsidiaries continue to strengthen their own calculation efforts, as provision planning efforts gradually rise to the level of the parent bank, it is expected that the downward pressure on the Group's provision coverage rate will ease and remain stable overall.
4. Investment advice and profit forecast: In the first quarter, the Bank of Ningbo increased its investment efforts and achieved rapid growth in scale. On the price side, benefiting from maturing repricing of high-cost deposits, net interest spreads continued to rise month-on-month under improved cost pressure, supporting net interest income to achieve industry-leading growth levels. However, the performance growth rate was affected by the high base for the same period last year, and the growth rate declined slightly. Looking ahead, it is expected that Bank of Ningbo's revenue will continue to maintain a growth rate of more than 5%. At the same time, benefiting from its excellent asset quality and strong reserve base, the performance growth rate will remain steady. Revenue growth in 2024, 2025, and 2026 is expected to be 6.4%, 10.4%, 10.5%, and profit growth rates of 7.9%, 8.3%, and 12.8%. Furthermore, Bank of Ningbo's dividend rate rose slightly to 15.99% in 2023. Currently, Bank of Ningbo's stock price is only 0.75 times 24-year PB. The valuation is severely suppressed by factors such as insufficient expectations for economic recovery and pessimistic market sentiment, and the cost performance ratio is outstanding.
Maintaining the buying rating and leading position in the banking sector.
5. Risk warning: (1) Economic recovery has fallen short of expectations, corporate solvency is weakening, and some enterprises with poor credit levels may be at risk of default, leading to the risk of bad bank exposure and a sharp decline in asset quality. (2) The concentrated exposure of risks in key areas such as real estate and local financing platform debt has had a major impact on the quality of banks' assets and greatly weakens banks' profitability. (3) The strength of the credit leniency policy falls short of expectations, and the rapid economic development in the region where the company operates is unsustainable, thus having a significant adverse impact on the company's credit investment. (4) The effects of retail transformation fell short of expectations, and large-scale fluctuations in the equity market affected the company's wealth management business.