Author: Han The main text has a total of 3251 words, and the expected reading time is 10 minutes. The 2023 annual report and the 2024 first-quarter report show that Bank of Beijing's performance is strong, and its asset size continues to lead city commercial banks. What is the secret of Bank of Beijing's strong growth momentum? Why can its stock price continue to rise and gain favor from institutions? The answer lies in Bank of Beijing's practice of promoting the cultivation of "new productive forces" and focusing on doing well in the "five major articles" of finance... As of May 28, Bank of Beijing's stock price has risen nearly 33% in nearly a year, ranking at the forefront of the listed city commercial banks in terms of growth rate, and also among the top companies in the entire banking sector of 42 companies. Bank of Beijing's market cap is firmly in the trillion yuan level. What is the reason behind its recognition by the market? Let's start with performance and see what information is revealed in the company business data. Stable operation and outstanding performance The newly released 2023 annual report and 2024 first-quarter report show that Bank of Beijing's business performance continues to grow steadily, and the non-performing loan ratio continues to decline. According to the 2023 annual report, Bank of Beijing achieved a total operating income of 66.711 billion yuan for the full year, a year-on-year increase of 0.66%; its net profit attributable to its parent reached 25.624 billion yuan, a year-on-year increase of 3.49%; and its return on equity (ROE) was 9.32%. According to the first quarter report released by Bank of Beijing in April, the bank's operating income was 17.69 billion yuan, a year-on-year increase of 7.85%; its net profit attributable to its parent was 7.864 billion yuan, a year-on-year increase of 4.95%. In addition to the growth in revenue and profit, the weighted average return on equity (annualized) was 12.39%, and the profit level has remained at a stable level. As the city commercial bank with the largest asset size, as of the end of 2023, Bank of Beijing's total assets increased by 10.65% to 3.75 trillion yuan compared with the beginning of the year; as of the end of the first quarter of 2024, the bank's asset size reached 3.89 trillion yuan. Looking closely at Bank of Beijing's loan and deposit scale data, both have maintained strong growth. On the asset side, Bank of Beijing's credit investment intensity remained at a strong level in 2023, and its performance in corporate loans was outstanding, and the growth rate of retail loans was higher than the industry average. As of the end of 2023, the bank's total amount of loans and advances exceeded 2 trillion yuan, a year-on-year increase of 12.14%. As of the end of the first quarter of 2024, the bank's total loans amounted to 2.12 trillion yuan, a 5.18% increase from the beginning of the year. On the liability side, as of the end of 2023, Bank of Beijing's total deposit principal increased by 8.18% to 2.07 trillion yuan year-on-year. Among them, the deposit scale reached 615.73 billion yuan, an increase of 14.5% compared with the beginning of the year, and the cost of savings deposits decreased by 6 basis points. Another bright spot in Bank of Beijing's performance is the double-digit growth in non-interest income. In 2023, Bank of Beijing's non-interest net income was 16.361 billion yuan, a year-on-year increase of 10.41%, and its proportion in total operating income continues to increase, reaching 24.5%. In the future, Bank of Beijing will also take wealth management, bank cards and other light capital businesses as the focus of growth, accelerate the transformation of light capital, and increase the proportion of non-interest income. Bank of Beijing is also continuously promoting the new retail strategic transformation. In 2023, the bank achieved a retail revenue of 24.39 billion yuan, a year-on-year increase of 10.21%, and its contribution to the company's performance accounted for 37.7%. The profitability and contribution of retail business have steadily increased. Bank of Beijing's asset quality also remained stable in 2023. As of the end of 2023, the bank's non-performing loan ratio was 1.32%, a decrease of 0.11 percentage points from 2022; the provision coverage ratio increased to 216.78%, an increase of 6.74 percentage points from 2022, which strengthened the risk offsetting capacity. In terms of dividends, according to the announcement issued by Bank of Beijing on April 12, 2023, the bank's cash dividend rate reached 30.28%, with a cash dividend of 0.32 yuan per share (including tax), totaling RMB 6.766 billion in cash dividends. The cash dividend rate has exceeded 30% in the past three years. Promoting the Cultivation of New Productive Forces In 2024, to accelerate the cultivation of new productive forces and inject new momentum into high-quality development, active efforts by financial institutions are indispensable.
The main text is a total of 4053 words and is expected to take 11 minutes to read.
Since launching the 'weak-sensitive asset strategy during economic cycles', China Zheshang Bank's performance has been significantly better than the industry average.
China Zheshang Bank (601916.SH), the youngest listed commercial bank in A-share, recently released its Q1 2023 and Q1 2024 financial reports, both of which have been recognized by the market as outstanding results.
An article published in the China Economic Times in early April pointed out that through the bank's full-year 2023 performance, we can see the practice and results of the 'weak-sensitive asset strategy during economic cycles', and believe that against the backdrop of economic fluctuations in the past two years, Zheshang Bank has established a group of customers that can withstand the economic cycle and smoothed out the impact of the cycle on bank operations.
In a research report released on April 30, Guosen Securities also gave a positive evaluation of the bank's Q1 operating performance, stating that the revenue was impressive while non-performing loans remained stable. The report also mentioned that under the negative impact of narrowing interest rate spreads in traditional lending and deposit operations, the bank actively adjusted its asset allocation, seized the opportunity of financial market trading, and achieved considerable revenue growth.
Compared with other listed commercial banks in A-share, Zheshang Bank has shown impressive growth in the past two years. However, some investors hope that the company will 'strengthen itself before expanding'. Why is that?
Accelerate performance and run fast
On the basis of small volume, Zheshang Bank has achieved rapid growth in the past year and reflected two major highlights.
The first highlight is that both revenue and profit recorded year-on-year growth. The bank achieved a total revenue of CNY 63.704 billion for the full year, a year-on-year increase of 4.29%; its net profit attributable to shareholders was CNY 15.048 billion, a year-on-year increase of 10.50%.
Compared with the industry, Zheshang Bank's 'double growth' performance is particularly rare. According to data from Hithink RoyalFlush Information Network, in 2023, the overall year-on-year revenue and profit growth of listed commercial banks in A-share were -3.68% and -2.96%, respectively. Against this backdrop, Zheshang Bank's net profit growth rate in double digits stands out even more impressively.
Examining more historical data reveals that in the three years before 2023, Zheshang Bank's profit performance was actually not as good as the industry average. 2023 was the year of the turning point, and the rapid momentum extended to the first quarter of 2024. During that quarter, the bank's revenue was CNY 18.407 billion, a year-on-year increase of 16.65%, and its net profit was CNY 5.913 billion, a year-on-year increase of 5.12%. The growth of these two indicators continued to outpace the average level among listed commercial banks in the industry.
The second highlight is that in the face of the difficult issue of net interest margin pressure among all banks, Zheshang Bank's net interest income rose to CNY 47.528 billion in 2023, an increase of CNY 0.466 billion, with a growth rate of 0.99%. The net interest margin maintained good resilience. Although it declined to 2.01% in 2023, it was still better than the industry average of 1.76% during the same period.
In that year, Zheshang Bank's non-interest net income also performed well, reaching CNY 16.176 billion, an increase of CNY 2.153 billion over the previous year, with a growth rate of 15.35%.
It is noteworthy that behind Zheshang Bank's impressive growth data lies the problem of a relatively small base. At present, Zheshang Bank has the smallest market capitalization among the nine listed commercial banks in A-share, and is even lower than Bank of Ningbo (002142.SZ), Bank of Beijing (601169.SH), and other major city commercial banks.
Although Zheshang Bank's total assets have surpassed the CNY 3 trillion threshold, it is still the smallest listed commercial bank in terms of total assets in the industry, and is far behind the major listed banks.
In terms of asset quality, at the end of 2023, Zheshang Bank's non-performing loan ratio decreased slightly by 1bp quarter-on-quarter and 2bp year-on-year, maintaining overall stability. The annualized net generation of non-performing loans in the fourth quarter of 2023 was 0.74%, a decrease of 31bp quarter-on-quarter. At the end of Q1 2024, the non-performing loan ratio of Zheshang Bank was 1.44%, unchanged from the beginning of the year. As mentioned earlier in the Guosen Securities research report, the bank's asset impairment losses in that quarter increased significantly by 38.1% year-on-year, but the provision coverage ratio fell by 5.1 percentage points from the beginning of the year. It is estimated that the company has increased the provision for non-credit assets to continue to strengthen its asset quality.
Exchange size and provision for growth.
In 2023, China Zheshang Bank achieved same-frequency and high-speed growth in both assets and liabilities, with a year-on-year growth rate of 20%, and the growth rate of total liabilities was slightly higher than that of total assets. This is generally interpreted by institutions as the fact that total liabilities can support the expansion of total assets.
On the asset side, in 2023, China Zheshang Bank maintained stable lending, with credit lending showing a monthly decreasing trend. Total interest-earning assets increased by 19.9% year-on-year, with a year-on-year growth rate of 12.5% for total loans, while high-speed growth in bond investments boosted asset growth. New loans increased by 191.2 billion yuan for the year, an increase of 13.4 billion yuan over 2022, with stable credit lending.
One noteworthy point is the high-speed growth of China Zheshang Bank's financial investments. According to the 2023 annual report, financial investments broke the 1 trillion yuan mark, recording 1 trillion yuan, an increase of 248.788 billion yuan over the previous year, with a year-on-year growth rate of 33.09%. Bond investments increased significantly from 546.824 billion yuan in 2022 to 760.103 billion yuan in 2023.
On the liability side, the growth rate of deposits has shown a marginal improvement, especially with interbank liabilities maintaining high growth. Interest-bearing liabilities increased by 19.8% year-on-year in 2023, with a total deposit amount growth rate of 10.9%, lower than the overall growth rate on the liability side. As a result, the deposit-to-interest-bearing-liabilities ratio declined by 1.8 percentage points to 64.3% on a quarter-on-quarter basis.
The marginal change in the liability side appeared in the fourth quarter of 2023. According to a research report from Zhongtai Securities released on March 31, 2024, China Zheshang Bank's net increase in deposits for the quarter was 70.2 billion yuan, reversing the year-on-year decline in the previous three quarters. In addition, interbank liabilities have maintained high growth and the proportion of interbank liabilities to interest-bearing liabilities has also increased to 21.9%.
The two most significant factors contributing to China Zheshang Bank's high-speed performance growth and scale expansion are the release of reserves and increased investment. The above-mentioned Zhongtai Securities research report conducted quantitative analysis, indicating that scale expansion contributed positively to 17.3 points of China Zheshang Bank's 2023 performance, followed by reserves release, which contributed 10.2 points. At the end of 2023, China Zheshang Bank's reserve coverage ratio declined by 0.35% quarter-on-quarter to 182.59%, still up 0.4% from the beginning of the year, maintaining overall stability. In addition, net other non-interest income positively contributed 2.76 points.
The factors that impede performance formation are led by net interest margin, which drags down performance by 16.29 points, followed by cost. Fortunately, the growth rate of China Zheshang Bank's expenses has shown a slowing trend, with business and management expenses accumulating a year-on-year growth rate of 13.8% at the end of 2023, slowing down from the 14.2% growth rate in the first three quarters.
Overall, China Zheshang Bank is one of the few banks in the industry that successfully achieved "growth in exchange for scale" in 2023.
What is the current situation of the "bank that loves real estate companies"?
In recent years, the development of China Zheshang Bank has been accompanied by such titles as "the bank that loves real estate companies" and "the bank that loves real estate developers," which in today's environment may not be a good thing. What is the exact risk exposure of China Zheshang Bank to the real estate industry in recent years?
In absolute terms, according to the 2023 annual report, the bank's corporate loans and advances to the real estate industry are not the highest in the industry, at 177.749 billion yuan, compared to 1.47 trillion yuan for Bank of China during the same period.
However, the market is still very sensitive to this risk exposure for four reasons.
The first is that, while other banks are reducing their loans and advances to the real estate industry, China Zheshang Bank's credit lending to this sector is not declining, but rising, from 166.827 billion yuan in 2022 to the aforementioned 177.749 billion yuan, with a proportion decreasing slightly from 10.99% to 10.41%.
A comparison also reveals that China Zheshang Bank's lending to the real estate industry is still relatively high. Another bank—Bank of Beijing—that also has assets totaling around 3 trillion yuan, reported that its loans to the real estate industry had a balance of 119.458 billion yuan, not only lower but also a lower proportion of 5.93% compared to China Zheshang Bank.
Secondly, China Zheshang Bank's major customers are concentrated in the real estate industry. Among the top 10 borrowers in 2023, five are from the real estate industry, including the first, third, fifth, sixth, and tenth, among which the largest single borrower's loan balance is 6.378 billion yuan, accounting for 2.69% of China Zheshang Bank's net capital.
Thirdly, China Zheshang Bank's non-performing loan ratio for the real estate industry is significantly higher than the previous year, reaching 2.48% in 2023, significantly higher than the non-performing loan ratio for other industries.
Fourth, Zhejiang Commercial Bank's business dealings with large real estate companies such as Evergrande have continued to receive attention from investors and the market. In 2021, Zhejiang Commercial Bank responded during the bank's plummet in the midst of the Hengda Group credit crisis, stating that the credit amount for Hengda Group at that time was 3.8 billion yuan, with sufficient collateral and controllable risks. In October 2023, Zhejiang Commercial Bank again revealed on its interactive platform that its credit balance for Hengda was over 2 billion yuan.
"Become stronger before becoming bigger" is the wish of investors.
Based on the above analysis, although Zhejiang Commercial Bank has outperformed the industry in terms of revenue and profit growth rate, there are factors with smaller bases and risk control issues that have always concerned the market.
An investor left a message on the interactive platform for Zhejiang Commercial Bank, saying:"Making money is not easy. I hope the company will become stronger before becoming bigger. Don't try to patch things up after becoming bigger."
Zhejiang Commercial Bank has given a clear plan for its future development direction. Especially the "economic cycle weak and insensitive asset strategy" praised by the market at the beginning of this article is also the bank's own management philosophy.
What is the "economic cycle weak and insensitive asset strategy"? Zhejiang Commercial Bank explained in its financial report that the operation of the banking industry is highly dependent on the economic cycle, and if you want to break this dependence, investing in cycle weak and insensitive assets will be a starting point.
What types of assets are considered weak and insensitive to the economic cycle? Zhejiang Commercial Bank believes there are three categories: small, diversified assets; assets in weak-cycle industries; and CSA (customer service accumulated). Specifically, small and scattered assets focus on retail and small and micro customers, leveraging assets with small and scattered features to manage through the cycle. Weak-cycle industry assets invest in the weakly-cyclical industries related to the national economy and people's livelihood, such as education and medical care, storage and logistics, and gas and water heating. CSA covers AUM wealth management scale, FPA public service and other six categories of financial services.
In the 2023 annual report, Zhejiang Commercial Bank also revealed the progress of the implementation of the "economic cycle weak and insensitive asset" strategy, stating that 56% of the bank's annual credit increment was aimed at small, diversified assets, and the revenue growth rate of "weak, insensitive assets" far exceeded the average revenue growth rate of the entire bank.
This strategy is idealistic, but reality will still face great tests. According to Pin An Securities' research report issued on April 30th, in the first quarter of 2024, the net interest income of Zhejiang Commercial Bank benefited from the deepening of the "economic cycle weak and insensitive asset strategy", and the asset-side interest rate resilience was highlighted, with a year-on-year growth of 0.6%, which was difficult to maintain growth under the general pressure of interest spread business in the industry. Although revenue performance is outstanding, the bank's profit growth rate has slowed down for the quarter. In particular, in terms of middle-income business, the negative impact of the reduction in the bank insurance rate has continued to show, with net fee and commission income for the quarter shrinking by 3.4% YoY.
Given that Zhejiang Commercial Bank is the only listed bank headquartered in the prosperous Zhejiang region, its business philosophy runs parallel with its "deep cultivation of Zhejiang" and cross-regional layout, laying the foundation for the bank's future development of public and retail businesses. In addition, the bank's asset quality entered an improvement cycle in 2022. Therefore, Pin An Securities is still optimistic, believing that with the continuous deepening of the strategy's implementation and as historical baggage continues to be shed, the bank's profitability is expected to improve.
In terms of risk warnings, institutions generally mention the three major issues of economic downturn leading to industry asset quality pressure exceeding expectations, continuing pressure of interest rate decline squeezing industry interest spreads, and increasing cash flow pressure of real estate companies leading to credit risk. Zhejiang Commercial Bank, which has demonstrated a "follower" posture, how to continue to maintain a positive trend in the future, optimize its own asset quality, and continue to release the dividend of the region? This "headwind situation" will continue.