The resilience of interest spreads is prominent, and the negative overall situation is stable

The Bank of Beijing's net profit and operating income in January-June was +2.4% year-on-year, respectively. The growth rates were -2.6 pct and -1.5 pct in January-March, and the annualized ROE and ROA in January-June were -0.60 pct and -0.06 pct to 10.98% and 0.76%, respectively. The decline in the company's interest spreads was manageable, the bad ones were basically steady, and non-interest growth slowed slightly. We forecast EPS of 1.24/1.31/1.39 yuan for 24-26, and a BVPS forecast of 12.65 yuan for 24, corresponding to 0.41 times PB. Comparable to the 24-year Wind, we consistently predicted an average PB of 0.60 times. The Bank of Beijing continued to promote retail transformation and increase digital transformation efforts. Considering the slowdown in non-interest growth, we gave the 24-year target PB 0.50 times and a target price of 6.33 yuan, maintaining the “increase” rating.

Loan growth is slowing down, and interest spreads are falling under control

The growth rates of total assets, loans and deposits at the end of June were +8.6%, +9.6%, and +12.9%, respectively, compared with -2.6 pct, -2.0 pct, and +3.7 pct at the end of March. Corporate loan investment slowed slightly. In the first half of the year, public/retail/discount accounted for 85%/8%/7% of new loans, and deposit growth increased, mainly due to the 24.5% and 27.4% year-on-year increase in corporate time deposits/personal time deposits, and a 7.3% year-on-year decrease in company demand deposits. The net interest spread for January-June was 1.47%, compared to -7 bps for the full year of 2023. The decrease in interest spreads was small compared to the same period. The reduction in interest-bearing assets was manageable while debt-side costs were optimized. The return on interest-bearing assets and the interest-bearing debt cost ratio for January-June were 3.58% and 2.09% respectively, compared to -10 bps and -6 bps for the full year of 2023. Net interest income for January-June was +3.8% year-on-year, up 1.9pct from Q1.

Non-interest growth has slowed, and capital has remained stable

Non-interest income for January-June was +13.4% year-on-year, down 13.6pct from January-March, mainly due to the higher base of fair value changes in profit and loss for the same period last year, -0.7%. Mid-year business revenue in January-June was -16.9%, and the growth rate was -0.8pct compared to January-March. The pressure on revenue was mainly due to -16.77% year-on-year ratio of agency and contract business. The cost-revenue ratio was +0.7% to 25.6% year-on-year, maintaining the industry's superior level. At the end of June, the capital adequacy ratio and core tier 1 capital adequacy ratio were 13.11% and 9.15% respectively, -0.01pct and +0.04pct month-on-month, and capital remained stable.

Bad, steady, moderate to positive, and hidden risks fluctuate

The non-performing loan ratio and provision coverage ratio at the end of June were 1.31% and 208%, respectively. Compared with the end of March, the non-performing loan ratio was stable and improving for eight consecutive quarters. The company's cumulative pressure drop in the first half of the year focused on business exposure of 12.4 billion yuan. Large-value insurance paid off. Real estate companies had a non-performing loan balance of 2.603 billion yuan, and a non-performing loan ratio of 2.14%, down 1.46 pct from the beginning of the year. Implicit risk fluctuated, and the share of concerned loans increased by 9 bps to 1.87% compared to the end of 2023. Loans/non-performing loans overdue for more than 90 days were 86%, +5pct compared to the end of 2023. Q2 single-quarter credit costs were 1.07%, -75bps year over year; Q2 single-quarter bad generation rate was 1.22%, +53bps month-on-month.

Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.