Professional Documents
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2011 Outlook
Lucy Feng Donger Wang +852 2252 2165 +852 2252 1590 lucy.feng@nomura.com donger.wang@nomura.com
NOMURA INTERNATIONAL (HK) LIMITED
BULLISH
A N C H O R
R E P O R T
A leap of faith
We think the Year of the Rabbit will be favourable for early believers in China banks. We believe the market is undervaluing the near-term operational outlook, overplaying regulatory risks and ignoring emerging growth. We look for NIMs to expand in the near to medium term, and see the pace accelerating in 1Q11F and 2Q11F on the back of the two rate hikes in late 2010. The fear factor has changed from LGFV exposure to rate liberalisation, particularly deposit liberalisation, but this is likely to take a long time in our view, and we do not expect significant margin erosion (50bps decline implied by market valuations) in the next three years as Chinas inflation and benchmark rates are on the rise while the PBoC addresses the issues of negative deposit rates and zero real lending rates. We do acknowledge that the introduction of different RRRs changes the playing field and this is an overhang on the stocks, but we believe we are the first on the Street to analyse this in detail and conclude that what it really means is that the PBoC wants to align economic growth more closely with resource allocation. Therefore, we believe banks with a rural focus such as ABC or an SME/retail focus such as CMB are likely to benefit, and these are our top BUYs along with BOC (beneficiary of RMB deregulation). That said, we believe BOCOMs growth profile will be compromised a little by differential RRR and we downgrade to NEUTRAL.
Stock ABC-H (1288 HK) ICBC-H (1398 HK) CCB-H (939 HK) BOC-H (3988 HK) BOCOM-H (3328 HK) CMB-H (3968 HK) CITIC Bank-H (998 HK)
20.20 26.86
Downgrading from Buy; Raising PT; Cutting PT Closing prices as of 7 January 2011
Analysts
Lucy Feng +852 2252 2165 lucy.feng@nomura.com Donger Wang +852 2252 1590 donger.wang@nomura.com
Even more controlled lending to curb inflationary pressures Implied sustainable ROEs already reflect bear case scenario Stock picks: rural players immune to tighter new policies
Nomura Anchor Reports examine the key themes and value drivers that underpin our sector views and stock recommendations for the next 6 to 12 months.
Any authors named on this report are research analysts unless otherwise indicated. See the important disclosures and analyst certifications on pages 153 to 156.
Nomura 14 January 2011
Banks | C H I N A
2011 Outlook
Lucy Feng Donger Wang +852 2252 2165 +852 2252 1590 lucy.feng@nomura.com donger.wang@nomura.com
NOMURA INTERNATIONAL (HK) LIMITED
BULLISH
Action
While we reiterate our fundamentally Bullish stance, we think 1Q11F monthly loan figures will be subject to close scrutiny by the market as a barometer of things to come under the new environment in 2011. We expect a more moderate pace of rate hikes especially in 1H11F to cushion the impact of loan demand. Our top picks: CMB, BOC, ABC and ICBC.
Catalysts
Strong 4Q10F and 1Q11F results may improve investment sentiment and provide better earnings visibility for 2011. Anchor themes Margin expansion and front-loading new loans are the key themes investors will look for in 1H11F, but negative sentiment from ongoing policy overhang still weighs on valuation. We think that, with rate liberalization a medium-term theme, share prices reflect a worst-case scenario on asset quality and margin deterioration.
20.20 26.86
Downgrading from Buy; Raising PT; Cutting PT Closing prices as of 7 January 2011
A leap of faith
Even more controlled lending to curb inflationary pressures
In our view, the monthly monitoring of banks lending and different required reserve rates (RRR) for different banks lets the Peoples Bank of China (PBoC) control bank lending more closely using subjective measures. We believe the different RRRs, if implemented strictly, are likely to affect the lending appetite of banks, causing them to be more cautious with regard to the pace of lending as well as the areas they lend to. The use of the anti-cyclical capital buffer is useful to absorb the impact from excessive lending in the system. On the other hand, it is increasingly apparent that liquidity is becoming tighter and it will be interesting to see whether the continued pressure for funding will cause the erratic yield spikes at the end of the month to persist. We understand that local bank branches have continued to be active in selling short-term savings products to attract liquidity. We believe that large-cap banks will dominate 2011 loan growth, given their lower LDR and larger deposit base.
Analysts
Lucy Feng +852 2252 2165 lucy.feng@nomura.com Donger Wang +852 2252 1590 donger.wang@nomura.com
Nomura
14 January 2011
Banks | China
Lucy Feng
Contents
Executive summary Five themes in 2011 4 6
(1) Different RRR for different banks is a more micro approach and changes the playing field 6 (2) New rules help banks getting used to Basel III (3) The need to find loan supply to meet the demand (4) Seeking a solution to end-of-month pressure on yields (5) Rate deregulation remains a medium-term target Look for banks that have over-reacted on the news 1Q11 to provide a few clues to the riddle 7 7 9 10 11 11
13
13 14 16
Central Economic Work Conference laid positive foundation for banks in 2011F15
4Q10 preview and 2011 earnings forecasts Risks from LGFV loan default should remain remote County area banking in China
County areas in China County area banking in China
25 28 32
32 38
45
45 50 55 57 59 61 63 65 67 69 71 72 74 77
78 79 80
Nomura
14 January 2011
Banks | China
Lucy Feng
Regional banks valuation comparison Regional banks performance comparisons Latest company views
Agricultural Bank of China ICBC China Construction Bank-H Bank of China (H-share) Bank of Communications China Merchants Bank China CITIC Bank China Minsheng Bank - H Shanghai Pudong Development Bank Shenzhen Development Bank Industrial Bank Huaxia Bank
97 99
101 106 110 114 118 122 127 131 135 139 143 147
Also see our Anchor Report: Asia Pacific Strategy Deflation, inflation and the return of the productive economy (6 December, 2010)
Also see our Anchor Report: China Strategy Higher ground (7 December, 2010)
Nomura
14 January 2011
Banks | China
Lucy Feng
Drilling down
Executive summary
The best thing about the future is that it comes one day at a time Abraham Lincoln
The year 2010 marks one of the worst years of performance for China banks on both relative terms (they underperformed 10% versus the HSI and 4% versus the HSCEI) and absolute terms (-4% versus +15% on average in 2005-10). As the sector appears inexpensive and stayed so in the past 12 months (7x to 8x P/E 2011F), we think investors have come to the conclusions that (1) the sector is a valuation trap as the trade was dominated by policies rather than fundamentals, and (2) the sector is cheap for deep-rooted reasons/problems, which may cause a medium to long term de-rating. While investors concern on the policy overhangs prevail, worry shifted from local government funding vehicles (LGFV) to interest-rate liberalization, particularly the pace and space, timetable, as well as the fundamental implications, for the sector.
(%)
(50)
50
100
150
1H10 (10) (4) (6) (3) 0 (23) (8) (7) (8) (10) (14) (26) (6)
2010 (full year) (9) 6 (3) (9) 4 (22) (10) (4) 6 0 0 (15) 10
It is our view that rate liberalization, particularly deposit liberalization, will take longer than expected to implement. Initially the central bank probably will introduce pilot tests for a few selected banks for a few selected products (such as large-size, long-maturity term deposits). Thus, the impact for the sector should be limited and will be closely monitored by the regulators. Significant margin erosion (50bps decline implied by the market) is unlikely to happen in the next three years, in our view, as Chinas inflation and benchmark rates are on the rise while the PBoC addresses the issues of negative deposit rates and zero real lending rates. Contrary to conventional wisdom, we believe that China banks NIM will expand in the near to medium term, and that the pace will accelerate in 1Q11F and 2Q11F, with the backdrop of two rate hikes in late 2010. Long term, we believe that now would be a good time for regulators to introduce rate liberalization, as a rising rate environment helps the banks absorb margin pressure from price competition. Hence, banks can either re-orientate their lending business towards higher margin SMEs (though better risk-pricing skills are required) or re-model their business model towards less capitalconsuming fee products. In Asia, the ASEAN banks have posted solid NIMs attributed to rising interest rates and a profit-driven lending model.
Nomura
14 January 2011
Banks | China
Lucy Feng
While all trading patterns seem to call for an underweight stance on the sector, we remain positive for the aforementioned reasons. China banks have underperformed for the past 15 months for the same reason policies and policy tightening. And emotional markets tend to decline (or rally) much longer than is perceived possible. Judging from the feedback of our past five weeks marketing, we conclude that most investors do not expect further policy announcements to be worse than what they already know. Even the bears do not expect rate liberalization to occur overnight and cut sector NIMs by a quarter the level perceived by the market (13bps to 60bps deterioration). The fear or hope for a further correction is especially prevalent amongst investors with a technical bent. This divergence between short-term and medium-term perspectives reflects a difficult dilemma for investors, most of whom are equal to underweight China banks, in our view. Many expect a perfect storm in 1Q under an inflationary shock event, for bottom fishing. Timing, as they say, is everything. We think that the much-speculated-about pullback will not occur in 1Q, as we do not expect any inflationary shock in the next few weeks. In the next section we summarize five themes we will look into in 2011and we point out that most of the positive catalysts, which should drive a re-rating of the sector, will occur in 1Q11F, in our view.
Nomura
14 January 2011
Banks | China
Lucy Feng
2011 outlook
Exhibit 6. RRR versus banking sector PB (large cap banks and small & medium banks)
(x)
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 (%) 20 18 16 14 12 10 8 6 May-07 Nov-05 Mar-09 Nov-09 Oct-08 Apr-06 Dec-06 Apr-10 Jul-09 Dec-10 Aug-06 Sep-07 Aug-10 Jan-08 Jun-08
RRR - Large Depository Institution (LHS) (x) RRR - Small and Medium Depository Institution (LHS) Large cap banks PB (RHS) 4.0 Small & Medium banks PB (RHS)
RRR - Large Depository Institution (LHS) RRR - Small and Medium Depository Institution (LHS) sector PB (RHS)
Source: Bloomberg, Nomura research
Nomura
14 January 2011
Banks | China
Lucy Feng
stability adjustment will be set subjectively by the PBoC and is likely to be driven mainly by 1) liquidity, leverage, provisioning levels, credit rating, and internal controls of a bank; and 2) the actual lending by the bank including the sectors. In our view, the goal of the PBoC under the new different RRR system is to align economic growth more closely with loan allocation. Therefore, we believe that banks with a rural focus, such as ABC, or an SME/retail focus, such as CMB, are likely to benefit.
RRR - Large Depository Institution (LHS) RRR - Small and Medium Depository Institution (LHS) y-y loan growth (RHS) y-y deposit growth (RHS)
Source: CEIC, Nomura research
RRR - Large Depository Institution (LHS) RRR - Small and Medium Depository Institution (LHS) LDR (RHS)
Source: CEIC, Nomura research
Nomura
14 January 2011
Banks | China
Lucy Feng
For Chinese banks, we estimate that around RMB21.6-21.8tn of loans will mature during 2011. Assuming 2011 sector new loans hit Rmb7-8tn, effectively a net number, this means gross new loans are circa RMB28.6-29.8tn in our view.
Exhibit 9. Percentage of loans with maturity <1 year to total loans (as of June 30, 2010)
(%)
60 50 40
(%) 20 15 10 5
(RMBbn) 2,000 1,500 1,000 500 0 (500) Jan05 Jan06 Jan07 Jan08 Jan09 Jan10 Minsheng Citic
0 Jan04
Monthly new loan (RHS) RRR - Large Depository Institution (LHS) RRR - Small and Medium Depository Institution (LHS)
Source: CEIC, Nomura research
We believe that most banks, assuming they do not have liquidity issues, should be willing to lend given new loans will be subject to the now higher interest rates. The pace of lending, however, will be subject to their expectations of further rate hikes. We expect a more moderate pace of rate hikes, especially in 1H11F, to cushion the impact of loan demand. Assuming that new bank lending is done at a loan deposit ratio (LDR) of below 75%, this implies that new deposits must be at RMB9-11bn.
Banks are willing to lend given that the new loans are subject to higher interest rates
Exhibit 12. Time deposits vs demand deposits (as of June 30, 2010)
(RMBbn) 12,000 10,000 8,000 6,000 4,000 2,000 0 BOCOM ICBC CMB BOC ABC CCB Time deposits Demand deposits
In our view, the monthly new loan and deposit figures during 1Q11F will be subject to scrutiny by the market, not only the size but the structure as well. We believe they will impact total lending for 2011F.
Nomura
14 January 2011
Banks | China
Lucy Feng
Exhibit 13. Net new loans/deposits breakdown in for Jan/Feb/Mar for past few years
2005 Jan Loans Monthly net new loans As % of total new loans in the year Deposits Monthly net new deposits As % of total new deposits in the year
Source: CEIC, Nomura Research
Feb
288.5 17.5
95.9 341.9 483.9 149.0 537.4 568.4 413.8 441.7 800.5 247.0 283.4 1,652.7 1,071.6 1,891.7 5.8 20.7 15.8 4.9 17.5 15.6 11.4 12.2 19.2 5.9 6.8 17.2 11.1 19.6
394.4 338.3 682.1 427.4 623.5 786.1 467.8 530.7 880.4 218.0 1,337.6 1,076.6 1,538.9 1,650.8 2,451.8 8.6 7.4 14.9 8.8 12.9 16.3 8.7 9.8 16.3 2.8 17.4 14.0 11.7 12.6 18.6
Given larger banks generally have a relatively lower LDR and also potentially higher deposit growth, they are the ones with the capacity to lend in our view. At the same time, the larger banks tend to be more cautious and strategic in their lending approach. Finally, we think bills remain the key source of short-term funding for corporates. Under a tighter liquidity environment, their flexibility could be used as a tool for banks to manage liquidity.
Source: www.zgpj.net
Nomura
14 January 2011
Banks | China
Lucy Feng
RRR - Large (LHS) RRR - Small and Medium (LHS) SHIBOR- 1 month (RHS) SHIBOR- 3 month (RHS) SHIBOR - 1 year (RHS)
Note: Large=Large Depository Institution; Small and medium= Small and medium Depository Institution Source: CEIC, Nomura research
RRR - Large (LHS) RRR - Small and Medium (LHS) 7d repo rate (RHS)
Note: Large=Large Depository Institution; Small and medium= Small and medium Depository Institution Source: CEIC, Nomura research
Nomura
10
14 January 2011
Banks | China
Lucy Feng
experiencing rising inflation and interest rates, such as India, Indonesia, Malaysia, and Thailand. We note that China is officially on a rising rate cycle since the PBoC announced a prudent monetary policy for 2011.
Exhibit 21. FY11F ROE erosion (difference between FY11F ROE and implied LT ROE)
(%) 0 (2) (4) (6)
(8) (10) Minsheng BOCOM CMB CITIC ICBC BOC ABC CCB
Nomura
11
14 January 2011
Banks | China
Lucy Feng
HK$9.00 HK$26.86
Nomura
12
14 January 2011
Banks | China
Lucy Feng
Nomuras economics team believes that the rise in non-food prices is mainly driven by rising input costs (raw materials and wages), excess liquidity and reduced overcapacity in the manufacturing sector. Given an average of above-20% minimum wage hikes implemented in 29 of 31 provinces in 2010, we expect growth in labour costs to continue climbing in the quarters ahead, pushing input costs higher. Moreover, given a weakening US dollar and high liquidity due to the US QE2 exercise totalling US$600bn, global commodity prices are set to rise firmly in the first half of 2011, contributing to higher inflation in China, in our view. As we think Chinas CPI inflation should be on a steady but milder rising trend in the first few months and is unlikely to peak in January 2011, there is a possibility that the PBoC might disappoint the market with no rate hikes in January or February 2011. We think the stock market has fallen such that there is little chance of a new low before 2Q11F, as we believe there will be no new policy measures to dampen the market to a new low until then. As such, we think it is time for investors to accumulate China banks stocks.
Nomura
13
14 January 2011
Banks | China
Lucy Feng
Since 20 Oct, 2010 0.36 1.91 2.20 2.50 3.25 3.85 4.20 5.10 5.56 5.60 5.96 6.14
Change (bps) 0 20 22 25 46 52 60 24 25 20 20 20
Since 26 Dec, 2010 0.36 2.25 2.50 2.75 3.55 4.15 4.55 5.35 5.81 5.85 6.22 6.40
Change (bps) 0 34 30 25 30 30 35 25 25 25 26 26
0.36 1.71 1.98 2.25 2.79 3.33 3.60 4.86 5.31 5.40 5.76 5.94
We see the PBoCs recent rate hikes as moves to narrow the deeper negative real deposit rate and anchor inflation expectations. The 1-year real deposit rate has remained in negative territory since February and dipped much deeper in recent months, with November CPI climbing to 5.1% y-y and the 1-year deposit rate remaining at 2.50% in the same month. We believe the prolonged negative deposit rate heightens expectations of higher inflation.
Nomura
14
14 January 2011
Banks | China
Lucy Feng
Central Economic Work Conference laid positive foundation for banks in 2011F
Chinas 2010 Central Economic Work Conference (CEWC) closed on 12 December in Beijing, having set the tone for economic policymaking in 2011F. While it did not release specific targets for GDP growth, CPI inflation and new loan growth in 2011F, it did set forth the main tasks for the governments economic work in the coming year: Strengthen and improve macro control to maintain stable economic growth; Promote the development of modern agriculture to guarantee the efficient supply of agricultural products; Accelerate the strategic adjustment of economic structure to improve the harmony and competitiveness of economic development; Improve basic public service and encourage innovation in the mechanisms of social management; Enhance the reform, and promote transformation, of the economic growth model; Continue to open up and promote global cooperation. More importantly, in our view, the meeting highlighted that Chinas monetary policy will officially shift from relatively loose to prudent in 2011F in an effort to control excess liquidity in the economy. It put a high priority on stabilising prices in the year 2011. As such, we believe the market is now expecting a RMB7trn new loan quota and multiple rate hikes in 2011F. Post our conversation with regulators, we believe new loan targets in 2011F should be slightly lower than those for 2010. We see rigid credit control in 1H11F, given that CPI inflation is likely to remain elevated before mid-year. However, we believe monetary policy will be reviewed in 2H11 when inflation moderates, and thus the loan target is likely to be revised up.
Moderate loan quota plus rate hikes should help expand NIM
In our view, tighter new loan quota and multiple rate hikes should be positive for China banks earnings outlook in 2011F. This is because banks earnings are more sensitive to changes in margin than to new loan volume, in our view. On the one hand, tightening of new loans should mean that banks can be more selective of their customers and thus should enjoy more pricing power while undertaking new lending. For instance, during its January 2011 analyst briefing Minsheng stated that it sees much-improved pricing power in January 2011 compared with the same period in 2010. As a result, the price of its SME product Shang Dai Tong has climbed to 10% pa, according to comments by Minsheng management. The current rate hike cycle should have helped China banks margin expansion, given the rate for demand for deposits was unchanged. As the next Exhibit shows, by end 1H10, over 50% of China banks deposits were demand deposits, most notably at ABC (55.7%), ICBC (50.8%), CCB (53.5%) and CMB (56.2%). This indicates that more than half of banks deposits would not be subject to higher rates, thus adding nil in extra funding costs for China banks. Further, 45.5%, on average, of banks loans have a maturity of less than one year; we believe these loans would be subject to re-pricing within one year if the PBoC announces additional rate hikes, which would in turn expand banks NIMs.
Current rate hike cycle should have helped banks NIM expansion Banks will be more selective of their customers, allowing for better pricing
Exhibit 28. % shares of demand deposits and short-term loans of China banks
1H10 (%) % share of demand deposits in total deposits % share of short-term loan in total loans
Source: Company data, Nomura research
Nomura
15
14 January 2011
Banks | China
Lucy Feng
Source: www.zgpj.net
Nomura
14 January 2011
Banks | China
Lucy Feng
2009
On the other hand, new deposits in November rebounded to RMB592bn after a significant drop in October (from RMB1,456bn in September to RMB177bn in October), with deposit growth remaining stable at 20% y-y in October. Given that new loans continued to surge, LDR (rolling 6 months) on incremental loans over deposit was further boosted to 149% in November from 143% in October, while outstanding LDR rebounded to 66.9% in November from 66.7% in October. The level remained stable throughout 2010. A closer look at banks LDRs reveals that the high ratios (and leverage) are more of a problem for small and medium-sized banks than large banks. The loan-to-deposit ratio of large banks stayed at 65% in November; however, the loan-to-deposit ratio of small and medium-sized banks was 84% in November, much higher than the regulators requirement of 75%.
2009
2010
Nomura
17
14 January 2011
Banks | China
Lucy Feng
Exhibit 34. Loan-to-deposit ratio: outstanding and rolling new loans and deposits
(%) 95 90 85 80 75 70 65 60 May-00 May-07 Mar-99 Nov-03 Mar-06 Sep-02 Sep-09 Nov-10 Jan-98 Jan-05 Jul-01 Jul-08 LDR (LHS) New LDR (rolling 6 months) (RHS) (%) 2.0 1.5 1.0 0.5 0.0 (0.5) (1.0) (1.5)
Large banks
90% 90% 88% 86% 86% 84% 85% 83% 82% 84% 84% 63% 63% 62% 63% 64% 63% 65% 65% 64% 65% 65%
Apr-10
In terms of total loans, the percentage share of corporate loans has been falling since April 2009, to the current level of 76.5%, while that of household loans has been consistently rising, to 23.4% as of November 2010. Households are increasingly becoming loan growth drivers, especially in long-term household loans, which account for 69% of total outstanding household loans and are continuing to rise at a steady pace.
Among corporate loans too, long-term loans have continued to account for a higher percentage of total loans, while short-term loans (for working capital) have continued to fall. Meanwhile, the percentage share of discounted bills remained at a historically low level in November. We believe the higher proportion of long-term household and corporate loans should benefit banks in the form of higher loan yields over the long term.
Nomura
18
Jul-10
14 January 2011
Banks | China
Lucy Feng
In terms of total deposits, while deposit growth was relatively strong in the first eleven months of 2010, it was driven by strong enterprise deposit growth, which we think is probably a result of improving corporate profits since the turn of 2010. According to the PBoC, enterprise deposit increased by RMB574bn (accounting for 97% of total new deposits) in November, while household deposits grew by RMB133bn. If this trend continues, it could weigh on Chinese banks deposit costs as corporate (wholesale) deposits are generally more expensive than household (retail) deposits. The PBoC said it is concerned about household deposits moving away from the system due to high inflation expectations, and has hiked interest rates twice by 25bps each time in late October and December in order to address the situation. Separately, the proportions of time and demand deposits remained relatively stable in November, suggesting stable funding costs for Chinese banks.
Nomura
19
14 January 2011
Banks | China
Lucy Feng
Nomura
20
14 January 2011
Banks | China
Lucy Feng
(%)
Household Saving
Enterprise
55 51% 52% 51% 51% 50% 51% 51% 51% 51% 50% 50% 50 45 40 35 32% 31% 32% 32% 32% 32% 32% 31% 31% 32% 32% 30 25 20 15 May-10 Nov-10 Mar-10 Aug-10 Sep-10 Feb-10 Oct-10 Jan-10 Jun-10 Jul-10 Apr-10
60 56% 55% 55% 55% 55% 55% 54% 54% 53% 54% 54% 55 50 45 40 35 30 25 19% 21% 20% 20% 20% 20% 20% 19% 20% 19% 19% 20 15 May-10 Aug-10 Sep-10 Nov-10 Nov-10 Mar-10 Feb-10 Jan-10 Jun-10 Oct-10 Oct-10 Apr-10 Jul-10
Again, the proportions of demand and time deposits at large banks were stable in 2010, with the former accounting for 43% and the latter 38% by end-November based on the disclosures by large banks. For small and medium-sized banks, the proportion of demand deposits and time deposits was stable at 39% and 34% as of end-November. We think some corporates entered into a negotiated deposit rate with small and medium-sized banks, categorised as other deposits. Small and medium-sized banks have a higher percentage share of such other deposits, which usually carry higher interest rates than demand deposits. This again points to higher funding costs for small and medium-sized banks in China.
Total Time
45 43% 42% 43% 42% 43% 43% 43% 43% 42% 43% 43% 40% 41% 40% 40% 40% 39% 40% 39% 40% 39% 38% 40 35 30 25 20 15 May-10 Nov-10 Mar-10 Aug-10 Sep-10 Feb-10 Jan-10 Jun-10 Oct-10 Jul-10 Apr-10
May-10
Mar-10
Aug-10
Most household deposits tend to be in time deposits (for saving), both for large banks and small and medium-sized banks, while most enterprise deposits are in demand (for working capital). In particular, enterprises hold a higher proportion in time deposits at small and medium-sized banks than in large banks, according to our analysis. This was particularly the case in 1H10, when smaller banks aggressively took deposit market share from large peers in order to deleverage their balance sheet and meet the 75% LDR requirement, according to a report by the 21st Century Business Herald in June 2010. The price war not only pushed up deposit costs for small and mediumsized banks, but resulted in added operational costs allocated to account managers for their marketing expenses and the gifts they offered new depositors. Given the threetime 50bps RRR hikes in November and December, we expect competition for
Nomura
21
14 January 2011
Sep-10
Feb-10
Jan-10
Jun-10
Apr-10
Jul-10
Banks | China
Lucy Feng
deposits will still be keen till end-2011. We saw this trend of keen competition for deposits resume in 4Q10. Given that tighter liquidity pushed interbank rates higher, we think Chinese banks were promoting more short-term structured financial products at higher yields. For instance, CCB offered a 3.9% pa rate for 3-day and 7-day deposit products on 29, 30, and 31 December 2010.
65 60% 60% 60% 60% 60% 59% 59% 59% 58% 59% 58% 60 55 50 45 40% 40% 40% 40% 40% 41% 41% 41% 42% 41% 42% 40 35 30 25 20 15 May-10 Aug-10 Sep-10 Nov-10 Mar-10 Jan-10 Feb-10 Jun-10 Oct-10 Apr-10 Jul-10
70% 71% 75 71% 69% 69% 69% 70% 70% 70% 70% 67% 65 55 45 35 25 15 May-10 Aug-10 Sep-10 Nov-10 Mar-10 Feb-10 Jan-10 Jun-10 Oct-10 Apr-10 Jul-10 33% 30% 29% 29% 31% 31% 31% 30% 30% 30% 30%
On the assets front, medium- to long-term loans account for a major chunk of total loans of large banks, accounting for 73% of their total loans in November 2010 based on our analysis of their financial statements. On the other hand, medium- to long-term loans only made up 52% of total loans for small and medium-sized banks and shortterm loans accounted for 45% in November 2010. We think that this is likely because large banks have more SOE borrowers who need more long-term loans for fixed-asset investment and infrastructure construction projects. In contrast, small and mediumsized banks have 40-80% of SME corporate clients who are more in need of shortterm working capital loans.
Nomura
22
14 January 2011
Banks | China
Lucy Feng
(%) 80 70 60 50 40
Short-term
Medium-Long term
Bill financing
71% 71% 72% 72% 72% 73% 73% 73% 73% 73% 73%
49% 50% 51% 51% 51% 52% 52% 52% 52% 52% 52% 50 46%46% 45% 44% 44% 44% 44% 44% 44% 44% 45% 40 30 20 10 0 5% Jan-10 4% Feb-10 4% Mar-10 4% Apr-10 4% May-10 4% Jun-10 4% Jul-10 4% Aug-10 3% Sep-10 3% 3% Nov-10 Oct-10
30 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 20 10 0 May-10 Aug-10 Sep-10 Nov-10 Mar-10 Feb-10 Jan-10 Jun-10 Oct-10 Apr-10 Jul-10 5% 4% 3% 4% 4% 3% 3% 3% 3% 2% 2%
Minsheng
Industrial
Note: Huaxia did not disclose LDR in 1Q10 and 3Q10 results announcement Source: CEIC, Nomura research
The PBoC raised RRR twice in November and once more in December to absorb excess liquidity in the market. Based on our estimates, banks will have to park an additional RMB1,050bn of their deposits at the central bank. As a result, banks are under more pressure to compete for deposits in order to meet the regulatory LDR of 75% by the year end. In our view, the impact will be less significant for large-cap banks which generally have a lower LDR and wider deposit base. We expect to see rising funding costs as banks compete to attract more deposits, especially as we expect the RRR to continue its upward trend in 2011.
Nomura
BOCOM
Huaxia
23
SPDB
SZDB
CCB
CMB
CITIC
ABC
ICBC
BOC
14 January 2011
Banks | China
Lucy Feng
Exhibit 55. Impact of recent three-time RRR hikes on Chinese banks LDR
LDR (%) ABC ICBC CCB BOC BOCOM CMB CITIC Minsheng SPDB Industrial SZDB Huaxia 55.15 58.24 61.34 74.68 77.44 73.71 73.29 72.28 70.37 76.31 74.23 72.79 LDR after three-time RRR hike (%) 55.99 59.13 62.27 75.81 78.61 74.82 74.40 73.38 71.44 77.47 75.35 73.89 Impact on LDR (pct) 0.84 0.88 0.93 1.13 1.17 1.12 1.11 1.10 1.07 1.16 1.12 1.10
Note: LDRs as of 30 September 2010, except Huaxia (30 June 2010) Source: Company data, Nomura research
We think the three-time 50bps RRR hikes have lifted the sector's LDR by 0.84-1.17%, which, we believe, is one of the reasons the PBoC slowed new-loan growth in November and December 2010. Based on our analysis, most large-cap banks are immune to the hikes because their LDR ratios are much lower than 75% LDR ratios of ABC (55.15%), ICBC (58.24%) and CCB (61.34%) would be well below the requirement and because they have plenty of excess reserves. However, there would have been more pressure on other peers to meet the 75% requirement as the year-end checks approached. We believe this will restrain those banks with higher LDR ratios from expanding their loans substantially. Moreover, we see greater pressure on joint-stock banks not to raise funding costs in the course of attracting more deposits in an effort to bring down their LDR ratios.
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Lucy Feng
A preview of the new environment in 2011: different RRR, loan supply and yields
Exhibit 56. Time deposits vs demand deposits (as of June 30, 2010)
(RMBbn) 12,000 10,000 8,000 6,000 4,000 2,000 0
Minsheng BOCOM ICBC CMB BOC ABC CCB Citic
Time deposits
Demand deposits
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Lucy Feng
Our economics team continues to see a higher CPI inflation of 4.5% in 2011F. They believe the PBoC needs to quicken the process of interest-rate normalization, hence the expectation of a 25bp rate hike in each quarter of 2011F. If this proves to be true, we believe it should serve as a positive catalyst for Chinese banks earnings growth in 2011F. Assuming 25bp symmetrical rate hikes in each quarter of 2011, which is our baseline forecast, Chinese banks NIM should expand by 9-17bp and net profit should grow by 2.7-9.7% in 2011F.
Exhibit 60. Chinese banks NIM expansion and earning growth in 2011F (baseline scenario)
ABC Impact on FY11F NIM (bp) Impact on FY11F net profit (%) Impact on FY12F NIM (bp) Impact on FY12F net profit (%)
Source: Nomura research
That said, we see a chance of fewer rate hikes in 2011F. If the PBoC turns out to announce only one round of 25bp symmetrical rate hikes, based on our estimates, it would boost banks NIM by only 2.5-6.6bp and earnings by 1.1-3.9% in 2011F. If there are two rounds of 25bp symmetrical rate hikes, we expect FY11F NIM to expand by 4.4-11.6bp and net profits to increase by 1.9-6.8%. Three rounds of 25bp symmetrical rate hikes should boost NIM by 5.6-14.9bp and earnings growth by 2.4-8.8% in 2011F, by our estimates.
Exhibit 61. NIM expansion and earning growth provided one 25bp symmetrical rate hike in 2011F
ABC Impact on FY11F NIM (bp) Impact on FY11F net profit (%) Impact on FY12F NIM (bp) Impact on FY12F net profit (%)
Source: Nomura research
Nomura
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Banks | China
Lucy Feng
Exhibit 62. NIM expansion and earning growth provided two 25bp symmetrical rate hikes in 2011F
ABC Impact on FY11F NIM (bp) Impact on FY11F net profit (%) Impact on FY12F NIM (bp) Impact on FY12F net profit (%)
Source: Nomura research
Exhibit 63. NIM expansion and earning growth provided three 25bp symmetrical rate hikes in 2011F
ABC Impact on FY11F NIM (bp) Impact on FY11F net profit (%) Impact on FY12F NIM (bp) Impact on FY12F net profit (%)
Source: Nomura research
However, if the expected rate hike turns out to be asymmetrical, we believe it would have a negative impact on Chinese banks and reduce their NIMs by 7.8-11.7bp and earnings growth by 5.2-8.1%, assuming 25bp rate hike on deposit rate while the lending rate remains unchanged. Having said that, we think there is a small chance the PBoC will take such action. As such, we remain positive on the China banks sector in 2011F.
Exhibit 64. Impact of asymmetrical rate hikes: 25bps rate hike on deposit rate, lending rate unchanged
ABC Impact on FY11F NIM (bp) Impact on FY11F net profit (%) Impact on FY12F NIM (bp) Impact on FY12F net profit (%)
Source: Nomura research
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Lucy Feng
Total local government revenue (RHS) % share from use of land (LHS)
Jun-08
Jun-09
Moreover, LGFV loans accounted for only what we consider to be a reasonable proportion of 7.8-19.2% of total loans for China banks under our coverage, according to disclosures by banks. And, as reported in the 21st Century Business Herald, 24% of all the LFGV loans are with full coverage and 50% with basic or partial coverage, if classified by the new method of four categories based on their risks. As a result, we are not concerned about any significant rise in NPLs of LGFV loans in 2011F.
Country total
530,000 11.9
Nomura
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14 January 2011
Jun-10
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Lucy Feng
PARTIAL
Can be classified as corporate loan after going through project stripping, restructuring and adding in new borrowers and guarantors. For loans that are mainly Ratio is between 30% and 70% and guaranteed or repayment sources are local fiscal income, given that the original repayment relationship of requires partial fiscal guarantee the loan remains unchanged, certain features such as guarantee principal, land, high quality enterprise shares, effective income rights and other legal equitant collateral can be added to reduce risks. Ratio is below 30% and majority of the loan requires fiscal guarantee There will be attempts to recover or exit from the loan.
250
NO
26
300
Nomura
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14 January 2011
Banks | China
Lucy Feng
Exhibit 70. Impact of new risk weighting of LGFV loans on FY10F CAR and T1 CAR
FY10F CAR (%) T1 CAR (%) Impact on CAR (pct) Impact on T1 CAR (pct) ABC 12.89 9.70 (1.48) (1.12) ICBC 12.90 9.95 (1.22) (0.94) CCB 12.27 9.42 (1.26) (0.96) BOC 12.40 9.57 (1.09) (0.84) BCOM 13.62 9.48 (1.17) (0.81) CMB 11.26 8.36 (0.52) (0.39) Citic 10.15 8.23 (0.74) (0.60) Minsheng 11.33 8.09 (1.27) (0.91)
Note: assume the current risk weight of LGFV loans to be 50%. As some of the banks did not disclose the detailed proportion under different coverage ratio, we could only estimate based on the data available and assume the same proportion as the nationwide results as of 30 June 2010 Source: Nomura Research estimates
Exhibit 71. Impact of new risk weighting of LGFV loans on FY11F CAR and T1 CAR
FY11F CAR (%) T1 CAR (%) Impact on CAR (pct) Impact on T1 CAR (pct) ABC 12.58 9.73 (1.23) (0.95) ICBC 11.96 9.37 (0.94) (0.74) CCB 11.31 8.94 (0.97) (0.77) BOC 11.69 9.08 (0.90) (0.70) BCOM 13.42 9.44 (1.02) (0.72) CMB 10.88 8.48 (0.42) (0.33) Citic 10.99 9.14 (0.67) (0.55) Minsheng 10.88 7.76 (1.12) (0.80)
Note: assume the current risk weight of LGFV loans to be 50%. As some of the banks did not disclose the detailed proportion under different coverage ratio, we could only estimate based on the data available and assume the same proportion as the nationwide results as of 30 June 2010 Source: Nomura research estimates
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Lucy Feng
affected. CMB, Citic and Minsheng, which already have more credit cost pressure from the 2.5% loan-loss provision ratio requirement, would not be subject to any further impact from such an arrangement on LGFV loans, per our estimation. However, we think this scenario is unlikely to happen.
Exhibit 72. Impact of the new LGFV arrangement on FY11F NPAT if the 2.5% loan-loss provision ratio requirement is applied to all existing loans by the end of FY11F
(RMBmn, except %) As of 30 September, 2010: Coverage ratio (%) Loan-loss provision ratio (%) Additional provision required At end-FY11F: Adjusted total provision allowance Excess provisions on top of 150% coverage (i) Base case Provision shortfall Impact on FY11F NPAT (%) (ii) Worse case Provision shortfall Impact on FY11F NPAT (iii) Worst case Provision shortfall Impact on FY11F NPAT (%) (58,005) (36) (19,340) (8) (34,442) (16) (24,438) (16) (12,088) (19) 0 0 0 0 0 0 (35,455) (22) 0 0 (8,417) (4) (1,354) (1) (3,227) (5) 0 0 0 0 0 0 (20,797) (13) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 158,802 9,645 164,288 50,691 137,543 43,633 138,879 44,813 54,372 14,496 34,549 21,313 30,012 15,426 24,811 13,716 160 3.32 0 210 2.42 5,130 213 2.43 3,890 194 2.19 17,319 168 2.05 9,724 304 1.94 7,722 176 1.43 12,885 259 1.93 5,623 ABC ICBC CCB BOC BCOM CMB Citic Minsheng
Note: Provisions on top of 150% coverage are used to cover NPL derived from LGFV loans in our calculation. Assume (i) Base case - 25% of categories 3 & 4 of LGFV loans will become NPL, and 35% and 100% provision are applied to NPL loans derived from LGFVs; (ii) Worse case - 25% of categories 3 & 4 of LGFV loans will become NPL, and 100% provision are applied to NPL loans derived from LGFVs; (iii) Worst case - 25% of categories 3 & 4 of LGFV loans will become NPL, and 150% provision are applied to NPL loans derived from LGFVs. Source: Nomura research
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Exhibit 74. National GDP per capita vs county area GDP per capita
(%) 50 49 48 15,000 10,000 5,000 0 2005
Source: CEIC, Nomura research
46 45 44
2006
2007
2008
Over the past decade, the county area economy has achieved significant growth as county areas in China continue to undergo urbanisation, industrialization and industry migration based on our analysis of CEIC data. During 2001-2008, the nominal GDP of county areas grew at a CAGR of 16.8%, higher than that of national nominal GDP, which stood at 15.5%. We believe that the county area economies in relation to the national economy will continue to grow in importance, driven by factors such as urbanisation, industrialization, industrial migration and supportive government policies.
Nomura
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Lucy Feng
Average consumption expenditure per capita in rural household (LHS) y-y (RHS)
(%) 50 40 30 20 10 0 (10)
The income of people living in county areas has maintained an upward trend over the past few years (source: CEIC). The average wage in county areas rose from RMB10,083 in 2004 to RMB21,570 in 2008. The growth rates each year in 2005-2008 were 31%, 11%, 23% and 19%, respectively, outpacing those of national average, except in 2006. The improving income level in county areas has followed overall national economic development in China.
Exhibit 78. y-y growth in national average wage and county area average wage
(%) 35 30 25 20 15 10 5 0 2005 2006 2007 2008 National average County area average
Rapid urbanisation, increasing business flows between urban areas and county areas, and the continued shift to a more consumption-driven economy have stimulated strong growth in urban areas and county areas alike, in our view. The government has implemented several economic development initiatives to stimulate domestic demand, narrow the urban and rural development gap, accelerate urbanisation and promote development across all regions. We believe continued urbanisation will further increase county areas contribution to Chinas GDP.
Nomura
33
14 January 2011
Banks | China
Lucy Feng
Nomura
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14 January 2011
Banks | China
Lucy Feng
On 22 April, 2009, the MoF issued Provisional Measures on Administering Funds for Rewarding Increases in Agriculture-related Loans by County Area Financial Institutions. On 21 August, 2009, the MoF and the SAT (State Administration of Taxation of the PRC) jointly issued a Notice on Policies for Pre-Tax Deduction of Loss Provisions for Agriculture-related Loans and SME Loans Made by Financial Enterprises, allowing a financial enterprise to deduct from its tax payable a specified percentage of its loan-loss provision for agriculture-related loans and SME loans upon completion of the risk classification of such loans by the financial enterprise. In 2009, the MoF issued a Notice on Issues Relating to Write-off of Non-performing SME Loans and Non-performing Agriculture-related Loans, allowing commercial banks to write off on an after-tax basis any individual non-performing loan to small businesses and county area customers in an amount less than RMB5mn, provided that a good faith effort to collect the debt was made during the prior year. On 13 May, 2010, the MoF and the SAT issued a Notice on Rural Finance Tax Policy. Pursuant to the notice, from 1 January, 2009 to 31 December, 2013, financial institutions are: 1) exempt from paying business tax for interest income from small loans to agricultural households; and 2) entitled to take into account only 90% of interest income from these loans when calculating taxable income. Further, during the same period, rural credit cooperatives, township banks, rural mutual cooperatives, and loan companies and other corporate entities established solely by banking industry institutions, rural cooperative banks and rural commercial banks that are located at or below the county level under the PRCs administrative division system are subject to a reduced business tax rate of 3% for their banking and bancassurance income.
Nomura
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Banks | China
Lucy Feng
rural credit unions) and small loan companies. For rural credit cooperatives and rural credit cooperative unions, the minimum level is 15.5%, which is 1% lower than that of commercial banks. Rural commercial banks and rural cooperative banks need to follow the same level as commercial banks at 16.5%, but this still 2.0 percentage points lower than that of large-cap banks. Given a lower RRR requirement than urban financial institutions, rural financial institutions can retain less of a reserve and make better use of its funding for earning a higher return. Taxation policies: Since 1 January 2009, a number of preferential taxation measures have been launched that benefit financial institutions that grant loans in rural areas or loans to agricultural households. From 1 January, 2009 to 31 December 2013, there is exemption from the 5% business tax, which is applicable to all financial institutions, for interest income from loans to agricultural households with outstanding principal of less than RMB50,000. In addition, only 90% of such interest income will be counted toward taxable income for income-tax purposes. For rural cooperative banks, rural credit cooperatives, rural credit cooperative union, modern rural financial institutions and small loan companies, income is charged at a beneficial level of 3% on business tax, effective from 1 January 2009 to 31 December 2011. From the above, we note that tax benefits can always be found in county lending over the next three years, in our view, while no such policies are likely to be launched in urban lending. Government subsidy: Modern rural financial institutions can enjoy an annual government subsidy equivalent to 2% of average loan amounts during the year, provided that the following conditions are fulfilled: 1) more than 15% y-y increase in average loan size; 2) DLR ratio above 50% by year end; 3) year end NPL ratio below 3%; and 4) no breaking of other CBRC rules and regulations. There are no such benefits granted to other financial institutions. Given the governments continuing emphasis on urbanisation and development of financial services in county areas, we believe preferential policies for county lending will be maintained. According to The General Working Plan for New-Type Rural Financial Institutions: 2009-2011 proposed by CBRC, there are plans to establish about 1,300 more new-type rural financial institutions across China during the next three years. Those institutions will be distributed mainly in unbanked and underbanked rural areas to fill the financial services gap and encourage competition among different kinds of local financial institutions. Through end-June 2009, 118 new-type rural financial institutions had been established, attracting a variety of capital worth RMB4.7bn, absorbing RMB13.1bn in deposits, and providing RMB5.5bn in loans to rural households and RMB8.2bn to rural small and medium-sized enterprises. To secure the implementation of the three-year Working Plan, the CBRC requires that the sponsors of new-type rural financial institutions first consider the key counties of the national poverty alleviation and development program in central and western regions. While banks are accorded the freedom to select the location for new presence, the CBRC has installed an incentive mechanism to guide them to set up units in underdeveloped and poorer areas. For instance, if the sponsors are actively establishing village banks in poor areas, the CBRC will provide stronger support to their business growth in developed areas.
Nomura
36
14 January 2011
Banks | China
Lucy Feng
Exhibit 81. Comparison of preferential policies for commercial banks and county area FIs
Commercial banks Items National commercial banks City commercial banks Rural cooperative financial institutions Rural commercial banks Rural cooperative banks >= RMB20mn Rural credit Cooperatives Rural Credit Cooperative Union (Note 3) >= RMB10mn Modern rural financial institutions Village level banks Loan companies (Note 4) Rural mutual cooperatives Non-financial institutions Small loan companies (Note 5)
Registration capital No. of shareholders Setup criteria Qualification of shareholders Shareholding structure Regulation on capital structure CAR T1 CAR RRR Deposit cost Loan yield Others
>=RMB1bn
>=RMB 0.1bn
>= RMB50mn
>= RMB1mn
County/city level >=RMB 3mn Town level >=RMB1mn To be in compliance of Company Ordinance To be initiated by financial institutions Shareholding by large cap banks>=20%; other individual shareholder<=10%
>=RMB 0.5mn
Limited companies>=RMB County/city >=RMB 5mn 0.3mn Joint stock companies>=RMB Town level >=RMB0.1mn 10mn >=10 To be in compliance of Company Ordinance Any legal capital
To be in compliance of Company Ordinance Reformed from rural credit unions or rural cooperative banks
>=500
>=1,000
na
na
na
na
na
na >=8% (Note 6) >=4% (Note 6) 18.5% or 16.5% (Note 1) Above 0.9x of PBOC benchmark rates
na To fulfill the requirement of local rural credit unions 0 - 1x of PBOC bench mark rates Above 0.9x - 2.3x of PBOC benchmark rates 15.5% No cross region operation No cross province loan lending
na na
Regulation on operation
Nation-wide operation Local operation only Exemption of business tax for interest income from small loans to agricultural households (1 Jan 2009 - 31 Dec 2013)
Above 0.9x of PBOC benchmark rates No cross region operating; Loan service to local Do not absorb public union members only deposits
1) A lower business tax of 3% (1 Jan 2009 - 31 Dec 2011); and 2) Exemption of business tax for interest income from small loans to agricultural households (1 Jan 2009 - 31 Dec 2013)
To take into account of only 90% of interest income from small loans to agricultural household for calculation of taxable income (1 Dec 2009 - 31 Dec 2013) (Note 2) Write-off of non-performing SME loans and agriculture-related loans with individual loan size less than RMB 5mn is allowed on an after-tax basis. na na Annual subsidy of amount equivalent to 2% of average loan amount during the year (The following conditions should be fulfilled as well: 1) More than 15% y-y increase in average loan size; and 2) DLR ratio to above 50% by year end 3) Year end NPL ratio bel
Note: 1. RR for big banks currently stands at 18.5% (19.0% for ICBC, CCB, ABC and BOCOM), and that for small & medium banks stands at 16.5% (17.0% for Minsheng). Big banks refer to ICBC, ABC, BOC, CCB, BCOM and the Postal Deposit Bank. Small and medium ban 2. As defined by MOF Notification, "Small loans to agricultural households" are loans lent to farmers with individual deal amount no larger than RMB 50,000. 3. Rural Credit Cooperative Union are formed by a number of Rural Credit Cooperatives. The lowest level of Rural Credit Cooperative Union is on county. 4. As defined by PBoC, loan companies are fully funded companies by commercial banks or rural cooperative banks. Loan companies are non-bank FIs and are regulated by CBRC and PBoC. 5. As defined by PBoC, small loan companies are non-FI that provide small loan business. They are managed by provincial level government. 6. It is reported that CBRC and PBoC are considering revising the CAR and T1 CAR requirement to 10% and 8%, respectively. The CAR ratio requirement may be raised to 15% by 2012 for big-cap banks. Currently, CBRC requires a CAR ratio of no less than 11.5 Source: 1. PBoC China rural financial services report dated September 2008 http://www.gov.cn/gzdt/att/att/site1/20080919/00123f3793250a3df83e01.pdf 2. MOF Notification (2010) No. 42 - Guidance on rural financial institutions subsidy http://www.gov.cn/zwgk/2010-06/02/content_1619270.htm 3. MOF Notification [2010] No. 117 - Further implementation on subsidy to FIs with agriculture-related loan growth http://www.gov.cn/zwgk/2010-10/11/content_1719454.htm 4. MOF and SAT Notification [2010] No.4 - Taxation policies on rural financial institutions 5. PBoC & CBRC Notification [2008] No. 137 - Policies on village level banks, loan companies, rural mutual cooperatives and small loan companies http://www.cnluye.com/html/main/gjjView/46721.html 6. PBoC & CBRC Notification [2008] No.23 - Guidance on pioneer small loan companies http://www.cbrc.gov.cn/chinese/home/jsp/docView.jsp?docID=2008050844C6FDE83536CF44FFF6E85E5BC32C00 7. PBoC & CBRC Notification [2007] No.6 - Policies on loan companies http://www.cbrc.gov.cn/chinese/home/jsp/docView.jsp?docID=200701293C5D24EA6CAB2F61FFE84FAF2846BB00 8. PBoC & CBRC Notification [2006] No.80 - Regulation on rural cooperative banks and rural commercial banks http://www.cbrc.gov.cn/upload/zwgk/ml3/2/1-2-7.doc
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Banks | China
Lucy Feng
Nomura
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14 January 2011
Banks | China
Lucy Feng
Exhibit 82. Major players in China's county area banking (as at end-2009)
Type of institution Large Commercial Bank Policy Bank Postal Savings Bank Small and Medium-sized Rural Financial Institutions Name of institution or sub-type Agricultural Bank of China Agricultural Development Bank of China Postal Savings Bank of China Rural credit cooperative institutions: - rural credit cooperatives - rural commercial banks - rural cooperative banks New-type rural financial institutions: - village and township banks - lending companies - rural mutual credit cooperatives
Source: CBRC
According to The General Working Plan for New-Type Rural Financial Institutions (2009-2011), an additional 1,300 institutions are to be established around the country with priority being given to the under-banked regions in central and western China. According to CBRC, progress was made by rural small and medium-sized financial institutions in 2009. By the end of 2009, the total number of villages and towns without financial institutions had been reduced to 2,792 from 2,945 at the end of June 2009, and the total number of villages and towns without financial services had been reduced to 342 from 708.
Nomura
39
14 January 2011
Banks | China
Lucy Feng
Exhibit 83. Key data of major rural commercial banks in China (as of 31 December, 2009)
Balance (RMBbn) Assets Beijing Rural Commercial Bank () Shanghai Rural Commercial Bank () Guangzhou Rural Commercial Bank () Chengdu Rural Commercial Bank () Dongguan Rural Commercial Bank () Foshan Shunde Rural Commercial Bank () Shenzhen Rural Commercial Bank () Wuhan Rural Commercial Bank () Jiangshu Jiangyin Rural Commercial Bank () Jiangsu Changshu Rural Commercial Bank () Jiangshu Xizhou Rural Commercial Bank () Jiangsu Zhangjiagang Rural Commercial Bank () Wujiang Rural Commercial Bank () Jiangsu Kunshan Rural Commercial Bank () Erdosds Rural Commercial Bank () Heifei ScienceTechnology Rural Commercial Bank () Taicai Rural Commercial Bank () Jilin Jiutai Rural Commercial Bank ( Chizhou Jiuhua Rural Commercial Bank () Anhui Feixi Rural Commercial Bank () Source: PBoC, Xinhua, Caixin and www.gdcct.gov.cn 284.30 212.25 Loans Deposits 122.10 118.78 262.20 179.23 Market share (%) Assets 0.361 0.269 Loans Deposits 0.305 0.297 0.439 0.300
185.69 126.19 110.30 101.56 76.12 54.55 41.57 40.37 36.60 32.52 31.56 24.98 2 .73 19.69 12.28 5.85 4.10 3.23
91.54 67.81 51.40 49.72 0.00 30.81 25. 6 21.76 23.22 18.01 19.89 16.30 6.52 9.54 8.12 2.51 2.40 2.19
152.37 103.68 95.50 84.69 0.00 46.65 35.84 35.00 32.04 26.23 28.66 22.38 13.50 16.61 11.06 5.10 3.70 3.01
0.236 0.160 0.140 0.129 0.097 0.069 0.053 0.051 0.046 0.041 0.040 0.032 0.026 0.025 0.016 0.007 0.005 0.004
0.229 0.170 0.129 0.124 0.000 0.077 0.063 0.054 0.058 0.045 0.050 0.041 0.016 0.024 0.020 0.006 0.006 0.005
0.255 0.173 0.160 0.142 0.000 0.078 0.060 0.059 0.054 0.044 0.048 0.037 0.023 0.028 0.019 0.009 0.006 0.005
Nomura
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Banks | China
Lucy Feng
HSBC was the first foreign bank to establish a solely funded rural bank back on 13 December, 2007 in Sanligang county in Hubei province, merely engaging in deposittaking services for both enterprises and households, as well as lending services for agriculture-related enterprise. Following its entry, HSBC has established a total of 10 rural banks in China, including its latest in Pingjiang county of Hunan province, opened on 30 December, 2010. All of these rural banks are mainly providing loans to agricultural households while taking deposits from agriculture-related enterprises and households in local areas. Some also provide non-collateral small-amount loans for agricultural households and individual industrial and commercial households in local areas, so as to meet their financing demands, according to a survey conducted by PBoC in 2008. Bank of East Asia set up its first rural bank on 15 December 2010 in Dongya village in Hubei province, which is also the first foreign rural bank in Shaanxi province. The bank mainly provides Sannong (the three areas of the agricultural economy that the government has identified as requiring assistance) loan services and loans to SMEs by offering a series of bank services for agricultural households and enterprises as well as SMEs in order to satisfy their demand for funding and financial management. At the early stage, the bank would focus on taking deposits, lending to agriculture-related business and settlement transactions. It would provide loans ranging from RMB1,000 to RMB2mn for agriculture-related industry. In contrast, Citibank has been building up small-loan companies instead of rural banks in county areas in China. Citibank has established three solely funded small-loan companies in county areas one in Gong An (Hubei province), one in Chi Bi (Hubei province), and one in Wafangdian (Liaoning province). They mainly provide different kinds of loans, including collateral and non-collateral, to households, individuals, industrial and commercial households and micro-enterprises.
Nomura
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14 January 2011
Banks | China
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25-Aug-05 13-Dec-07 29-Dec-07 2-Sep-08 7-Oct-08 15-Oct-08 4-Feb-09 19-Mar- 9 2-Dec-09 21-Dec-09 28-Dec-09 14-Sep-10 3-Dec-10 14-Dec-10 30-Dec-10
Shanghai Hubei Tianjin Chongqing Liaoning (Wa Fang Dian) Hubei (Gong An & Chi Bi) Fujian Neimenggu Guangdong Beijing Chongqing Shandong Hubei Chongqing Shaanxi Hunan
Nomura
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Banks | China
Lucy Feng
Given the to-be-launched loan-loss provision requirement of 2.5%, as required by the regulator, we believe Chinese banks must undertake initiatives to increase their profitability through channels such as higher margins or non-interest income. In our view, county banking is one of the ways out. Given increasingly intense competition for quality customers and projects in urban banking, banks pricing power has continued to fall. County banking together with its urbanisation theme, which in turn implies industrialisation for agriculture and other manufacturing, is an ideal place for Chinese banks seeking growth opportunities, in our view. We believe the government will continue to launch favourable policies to support development in county area banking. According to CBRC, in 2010 it will further provide strong support for rural financial service development. Measures include promoting the expansion of coverage and services of rural financial institutions, guiding the large commercial banks and policy banks to provide financial services to rural areas, encouraging further innovation of rural financial products and services, and facilitating the synergy of combining banking and insurance services in rural areas. On the back of continuing government emphasis and support, we believe banks operating in county areas will continue to benefit from preferential measures and incentives. In our view, banks that already have an operating network in county areas, particularly ABC, will benefit the most. Other peers need to consider their business strategies when pursuing more market share in county areas, given the potentially substantial initial capital, time and approvals needed.
Percentage of total (%) 2008 5,645 2009 6,946 2003 7.68 58.03 10.70 5.29 0.14 0.00 0.53 9.58 3.29 3.25 1.50 2004 7.63 56.91 11.54 5.40 0.18 0.00 0.57 9.74 2.76 3.43 1.84 2005 7.82 56.06 11.92 5.44 0.81 0.73 0.54 8.39 2.71 3.68 1.91 2006 7.90 55.15 12.39 5.90 1.15 1.06 0.42 7.85 2.41 3.67 2.11 2007 8.13 53.25 13.78 6.35 1.16 1.23 0.25 8.26 1.85 3.36 2.38 2008 9.05 51.03 14.12 6.62 1.49 1.61 0.13 8.35 1.89 3.55 2.16 2009 8.82 50.89 14.96 7.21 2.37 1.62 0.03 6.97 1.97 3.43 1.71
2005 2,928 4,465 2,037 303 275 203 3,143 1,016 1,379 715
2006 3,472 5,445 2,594 504 465 183 3,450 1,059 1,612 928
2007 4,278 7,249 3,340 610 646 131 4,343 972 1,769 1,252
27,658 31,599 37,470 43,950 52,598 62,388 78,769 16,051 17,982 21,005 24,236 28,007 31,836 40,089 8,809 11,785 4,132 929 1,003 80 5,211 1,180 2,216 1,345 5,680 1,866 1,279 27 5,493 1,551 2,705 1,349
Percentage of total (%) 2008 5,265 2009 6,539 2003 7.63 57.91 10.76 5.31 0.14 0.00 0.55 10.02 2.89 3.38 1.41 2004 7.59 56.78 11.65 5.43 0.18 0.00 0.58 9.90 2.55 3.58 1.76 2005 7.75 55.98 12.10 5.46 0.80 0.72 0.56 8.41 2.55 3.85 1.82 2006 7.91 54.86 12.60 5.93 1.15 1.04 0.43 7.91 2.26 3.87 2.05 2007 7.91 53.33 13.94 6.36 1.16 1.22 0.25 8.39 1.61 3.54 2.29 2008 8.98 50.99 14.28 6.60 1.49 1.60 0.13 8.51 1.62 3.74 2.05 2009 8.80 50.99 15.10 7.16 2.36 1.61 0.03 7.07 1.70 3.59 1.59
2005 2,776 4,332 1,954 287 257 200 3,011 913 1,379 653
2006 3,301 5,254 2,472 479 436 178 3,301 942 1,612 853
2007 3,920 6,911 3,152 577 605 125 4,157 796 1,757 1,135
26,594 30,325 35,807 41,711 49,568 58,601 74,335 15,400 17,218 20,045 22,882 26,433 29,878 37,903 8,368 11,222 3,865 876 938 76 4,989 949 2,194 1,203 5,321 1,755 1,194 25 5,258 1,265 2,671 1,182
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Percentage of total (%) 2009 668.4 35.3 400.1 92.5 49.7 14.9 13.5 0.2 22.8 29.9 3.2 6.5 10.95 55.20 12.63 5.55 0.96 1.22 0.17 4.33 7.47 0.15 1.36 3.94 60.72 14.42 6.99 1.25 1.78 0.11 3.76 4.88 0.11 2.04 5.27 59.86 13.84 7.43 2.23 2.02 0.03 3.41 4.47 0.48 0.96 2007 2008 2009
2007 446.7 48.9 246.6 56.4 24.8 4.3 5.5 0.8 19.3 33.4 0.7 6.1
2008 583.4 23.0 354.2 84.1 40.8 7.3 10.4 0.6 21.9 28.5 0.7 11.9
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Lucy Feng
Case studies
GDP from Tertiary Industries (LHS) GDP from Secondary Industries (LHS) GDP from Primary Industries (LHS)
31% 31%
20%
19%
18%
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Lucy Feng
(%) 50 49 48 47 46 45 44
2001
2002
2003
2004
2005
2006
2007
2008
The Chinese government embarked on the urbanisation of China in 1949, when only 10.6% of its total population lived in urban areas. Sixty years later, its urbanisation ratio had risen to 46.6% (source: CEIC). Chinas urbanisation process has accelerated since 1995, with more than 16mn of the rural population being urbanised every year, on average. We expect this trend to continue over the next 2-3 decades, with the urbanisation ratio reaching 58.6% by 2020 and 69.0% by 2030. We believe that the urbanisation trend will create demand for financial services on both the consumer and corporate levels. Additionally, labour in rural areas will undergo a gradual shift to the non-agriculture economy. In county-level areas there will likely emerge a large number of small cities; industry structure upgrading and urbanisation will likely accelerate the development of the county-level economy. We see opportunities for financial companies that are well positioned to service this population and development trend.
15
10
0 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029
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Lucy Feng
establishment Dec-08 Feb-07 Nov-01 Aug-05 Jun-05 Jan-05 Nov-01 Aug-04 2001 1952 Aug-05 Dec-09
Area North Eastern Eastern Eastern Eastern Eastern Eastern Eastern Eastern Eastern Southern Southern Southern
Province/City Jilin Anhui Jiangsu Shanghai Jiangsu Jiangsu Jiangsu Jiangsu Jiangsu Guangdong Guangdong Guangdong
Accompanied by the fast growth rate, bad loans declined at 60-240bps y-y, while asset quality continued to improve. The 12 banks had NPL ratios of 1-2% by end-2009. We note that around 50% of the total loans were to manufacturing industries, followed by wholesale and retail, and public facilitation. Most of these rural commercial banks position themselves as SME business service providers. This is, in our opinion, in line with Chinas urbanisation trend, where both individuals and small corporations are in great need of capital to upgrade living and production quality. For the 12 rural commercial banks we examined, gross loans grew by 14-46% y-y in 2009, according to our analysis of their financial statements.
Nomura
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Lucy Feng
Exhibit 94. Breakdown of China rural commercial bank loans by loan types (2009)
Manufacturing, 38%
Others, 38%
Exhibit 95. Rural commercial banks NPAT and loan growth rate (2009)
Rural Commercial Banks Jilin Jiutai Rural Commercial Bank () Hefei Science & Technology Rural Commercial Bank () Zhangjiagang Rural Commercial Bank () Shanghai Rural Commercial Bank () Jiangsu Xizhou Rural Commercial Bank () Taicang Rural Commercial Bank () Jiangsu Changshu Rural Commercial Bank () Jiangsu Wujiang Rural Commercial Bank () Jiangsu Jiangyin Rural Commercial Bank () Zhuhai Rural Credit Cooperatives () Guangdong Rural Credit Cooperatives () Shunde Rural Commercial Bank ()
Source: Data from respective banks, and Nomura research
NPAT y-y growth rate Gross loan y-y growth rate (%) (%) (9.80) 16.80 46.3 25.6
3.50 (46.00) 8.60 9.10 7.70 (0.10) 5.20 20.40 7.20 20.40
35.1 27.5 42.2 30.1 19.7 24.5 27.9 16.0 13.8 24.6
Nomura
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Banks | China
Lucy Feng
Our study suggests that rural commercial banks have a relatively high loan yield compared with peer large urban banks. The average loan yield for four sample rural banks (Hefei Science & Technology Rural Commercial Bank, Shanghai Rural Commercial Bank, Jiangsu Xizhou Rural Commercial Bank and Jiangsu Changshu Rural Commercial Bank) is 6%, 1.12 percentage points higher than the average listed China banks, based on our calculations. In 2009, T1 CAR and CAR ratios for these 12 banks ranged from 9.35% to 15.55% and 10.21% to 17.33%, respectively. We note that unlike the big national commercial banks whose T1 CAR and CAR ratios are similar, or in a narrow range (eg, T1 CAR ranges from 8.2-9.8%, CAR ranges from 10.2-13.6%), capital adequacy for rural commercial banks is spread widely. We believe this is because capital-raising and useof-capital status varies depending on the local economy. We think these rural commercial banks are able to charge a premium on individual and corporate loans, as they provide various loan products tailored specifically to local farmers and SMEs. For example, Golden Seed small loans offered by Changshu Rural Commercial Bank target local farmers and businessmen. Changshu offers loans with amounts ranging from RMB5,000 to RMB0.5mn and a term from three months to two years. However, collateral is not necessary as long as a guarantee is provided by a local resident with stable income.
Nomura
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14 January 2011
Guangdong
Shandong
Jiangsu
Anhui
Banks | China
Lucy Feng
Exhibit 99. Loan yields and funding costs China rural commercial banks
Rural Commercial Banks Jilin Jiutai Rural Commercial Bank () Hefei Science & Technology Rural Commercial Bank () Zhangjiagang Rural Commercial Bank () Shanghai Rural Commercial Bank () Jiangsu Xizhou Rural Commercial Bank () Taicang Rural Commercial Bank () Jiangsu Changshu Rural Commercial Bank () Jiangsu Wujiang Rural Commercial Bank () Jiangsu Jiangyin Rural Commercial Bank () Zhuhai Rural Credit Cooperatives () Guangdong Rural Credit Cooperatives () Shunde Rural Commercial Bank ()
Source: Data from respective banks, and Nomura research
Funding costs 25bps above benchmark rate 1.56% 1.47% (corporate rate) 2.30% (individual rate) 1.7% 1.4% na 1.9% na na na na na
Loan yields 8.7%-10.0% * 8% for farmers' loan only with amount limit of RMB3-4K 5.63% 7.09% (corporate rate) 5.89% (individual rate) 6.2% 6.3% na 5.7% na na na na na
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Lucy Feng
been increasing rapidly (manufacturing loans represented 27.9% of total loans in the province in 1Q10); 2) the proportion of SME loans is growing significantly (SME loans represented 65.6% of total loans); 3) loans to tertiary industry are increasing.
Secondary industry
Real estate 6%
Others 15%
Primary industry 7%
55.0%
6.9% 2009
6.6%
Anhui province
Anhui province is in the southeast of China, covering a total area of 139,600 sq km, accounting for 1.45% of the countrys land. Benefiting from a mild climate, Anhui province is rich in agricultural resources and products, and possesses 42.7bn sqm of farmland, 41.3bn sqm of forest land and 5.3bn sqm of aquatic farms. Anhuis agricultural products are well known at home and abroad (source: Caixin) Compared with its more successful neighbours in the east, Zhejiang and Jiangsu, Anhui is behind in terms of economic development, with a GDP per capita around onethird the level of those two provinces. There is great regional disparity as well, and most of the wealth in the province is concentrated in industrial regions close to the Yangtze River, such as Hefei, Wuhu and Maanshan (source: Caixin) With an urban population accounting for only 27.8% of Anhuis total population, we believe there is potential for economic growth alongside the regions accelerated urbanisation trend. Comparatively, contributors to Anhuis GDP are less diversified (with over 55% contributed by industrial and primary industries). The financial industry represents around 4% of the provinces total GDP. By end-2009, total loans in Anhui province amounted to RMB934.9bn, representing 1.37% of Chinas total loans in 2009. The Anhui government has been supportive of banking industry development and emphasized the important role that banks play in facilitating economic development. During 2009, 7,966 projects totalling RMB336bn were launched by banks to county-level SMEs/farmers to facilitate county development. Half of the capital was directly invested to facilitate agriculture development (eg,
Nomura
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Banks | China
Lucy Feng
farming technology), together with the relevant support of agriculture-related business (eg, trading in agriculture products).
Tertiary Industry Secondary Industry Primary Industry 36.4% 37.4% 39.0% 46.6% 48.7% Banking & insurance Wholesale 4% & retail Trade 7% Transport, storage & post 5% Secondary industry: construction 8%
16.3% 2008
16.0% 2009
14.9%
Shanghai
Shanghai is situated on the banks of the Yangtze River Delta in eastern China. It is the largest city in China and the eighth-largest city in the world, and is regarded as the centre of finance and trade in China. Shanghai has a population of 18.7mn, including a transient population of 2mn. In 2009, Shanghais GDP reached RMB1,505bn. Shanghais links to both the Chinese interior and the central government are stronger than those of other areas, and a stronger base in manufacturing and technology. Shanghai has increased its role in finance, banking, and as a major destination for corporate headquarters, fuelling demand for a highly educated and modernized workforce. Shanghai recorded double-digit percentage GDP growth for 15 consecutive years from 1992 (source: CEIC). According to the Shanghai statistics authority, in 2009, the annual income per citizen was RMB26,675 and annual income per rural resident was RMB11,385. The average consumption per citizen amounted to RMB19,398 and the average annual consumption for each rural citizen was RMB9,115. Compared with other areas/provinces we examined, Shanghai had the highest urbanisation rate of 86% as at end-2009. Industrial activities contributed 36% of total GDP (as opposed to an average of 46% of the other four provinces), while the contributions from banking and insurance, and real estate were 12% and 8%, respectively. We expect the tertiary industry to play a more important role in Shanghais economic growth.
Nomura
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Banks | China
Lucy Feng
Tertiary Industry Secondary Industry Primary Industry 59.4% Others 20% Real estate 8%
52.6%
53.7%
39.9% 0.8%
Secondary industry: construction 4% Wholesale & retail trade 15% Transport, storage & post 4%
Guangdong province
Guangdong province is in southern China, bordering the special administrative regions of Hong Kong and Macau. Guangdong province covers an area of over 180,000 sq km and has population of 96.38mn. It is also the second largest economy of a sub-national entity in terms of GDP (RMB3,948bn in 2009) in all of Asia (only after Korea), according to a report published by Standard Chartered Bank. In 2009, Guangdong's primary, secondary, and tertiary industries were worth RMB201bn, RMB1.93tn, and RMB1.78tn, respectively. Its per capita GDP reached RMB40,748. Guangdong contributes approximately 12% of the total national economic output (source: CEIC). Guangdong has played a pioneering role in Chinas economic reforms ever since the countrys implementation of opening policies in the late 1970s. Three of Chinas Special Economic Zones, namely, Shenzhen, Zhuhai and Shantou, are located in Guangdongs coastal areas. Guangdongs economy is based on manufacturing and exports. The nine pillar industries in Guangdong include three new leading industries electronic information, electric machinery and special purpose equipment, and petroleum chemicals; three traditional industries textile and garment, food and beverage, and construction materials; and three potential leading industries paper making, pharmaceuticals, and automobiles (source: Caixin). Guangdongs GDP is balanced between secondary and tertiary industry, with the contributions accounting for 46% and 49%, respectively. Primary industry only contributes around 5% of total GDP. Guangdong has a strong wholesale and retail industry. It contributes roughly 10% of overall provincial GDP. The banking and insurance industry is less developed and contributes 6% of GDP (source: CEIC).
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Banks | China
Lucy Feng
42.9% 43.3%
51.6%
49.2%
5.5% 2009
5.1%
Shandong province
Shandong province is located on the eastern coast of China, in the lower Huanghe River valley. The province has an area of more than 150,000sqkm and a population of 94.7mn, of which 52% live in the rural areas and 48% in the cities (source: CEIC). In 2009, Shandongs GDP reached RMB3,390bn, ranking it third among all provinces in China. Primary, secondary and tertiary industries accounted for about 10%, 55%, and 35%, respectively, of overall GDP. The major industries of Shandong province are agriculture, high-tech, construction and transportation (source: CEIC). By end-1H10, total assets of banks in Shandong amounted to RMB4.73tn, of which 45.7% were owned by state-owned commercial banks, 14.9% by joint-stock commercial banks and 9% related to city commercial banks. Half of Shandongs GDP came from industrial activities, followed by primary industry (10%) and wholesale and retail industry (9%). Only about 6% of total GDP was generated from banking and insurance activities (source: CEIC).
Nomura
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Lucy Feng
Tertiary Industry Secondary Industry Primary Industry 33.4% 33.4% 55.8% 34.7%
57.0%
9.7% 2009
9.5%
Operational highlights
The banks main lines of business include loans, interbank deposits/lending and bond services. These three services generated total income of RMB1.7bn during 2009. Ninety percent of the loans provided were for corporate clients, of which 64% were for the manufacturing industry, 15% for business services and 9% for public facilitation and construction industries (source: company data, financial statements). The micro loans (Sannong) provided by Zhangjiagang Rural Commercial Bank constituted 99% of total micro loans provided to farmers within the city, and 83% of the banks loan book by end-2009. The top five priorities that the bank facilitates are organic rice, livestock, changjiang fisheries, flowering and fruits industries (source: company data, financial statements).
Financial highlights
As at the end of 2009, the bank had total outstanding deposits and a loan balance of RMB26.2bn and RMB18bn, representing increases of 27% y-y and 35% y-y, respectively. Total NPLs amounted to RMB170mn, representing 0.95% of the total
Nomura
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Banks | China
Lucy Feng
outstanding loan balance and a decrease of 19.3% y-y. The loan loss coverage ratio was 238.47%, an increase of 72.5%. The bank achieved an increase in net earnings of 3.7% y-y by achieving net earnings of RMB519mn.
2007 1,336 (566) 770 1,351 (800) 543 (19) 523 (56) 468 468 2007 24,543 11,362 128 288 18,053 2,457
2008 1,591 (699) 893 1,621 (1,051) 665 (74) 591 (91) 500 (1) 501 2008 26,824 13,327 212 352 20,596 2,829
2009 1,608 (711) 898 1,630 (1,104) 654 (56) 598 (79) 519 0 519 2009 32,518 18,005 171 408 26,225 3,206
2008 y-y % chg 19.1 23.5 16.0 20.0 31.3 22.5 282.9 12.9 62.8 7.0 na 7.1 y-y % chg 9.3 17.3 65.0 22.1 14.1 15.1
2009 y-y % chg 1.1 1.7 0.6 0.6 5.1 (1.7) (24.6) 1.2 (12.8) 3.7 (104.8) 3.5 y-y % chg 21.2 35.1 -19.3 16.0 27.3 13.3
542 4.53 1.00 1.00 2007 59.27 10.62 1.91 19.05 62.94 1.13 224.31 12.88 12.88
542 5.22 0.92 1.09 2008 64.83 15.32 1.25 18.97 64.71 1.59 165.93 14.43 14.67
542 5.91 0.96 1.10 2009 67.74 13.20 1.75 17.20 68.66 0.95 238.47 13.20 13.51
(0.1) 15.2 (8.0) 9.0 y-y % chg 5.6pct 4.7pct -0.7pct -0.1pct 1.8pct 46bps -58.4pct 1.6pct 1.8pct
0.1 13.2 4.3 1.1 y-y % chg 2.9pct -2.1pct 0.5pct -1.8pct 3.9pct -64bps 72.5pct -1.2pct -1.2pct
Nomura
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14 January 2011
Banks | China
Lucy Feng
Lease and business service, 3% Construction , 5% Water supply, environment and public facility, 6% Trading and services, 10%
Operational highlights
The banks main lines of business include loans, interbank deposits/lending and bond services. These three services generated total income of RMB1.5bn during 2009 (source: company data, financial statements). Lending business alone generated profits of RMB1.1bn, representing 73% of total income. Of the banks loans, 66% were for the manufacturing industry, 15% for leasing and business services and 4% for public facilitation management. Other loan borrowing industries also include wholesale and retail business and water supply business. Short-term loans (term less than one year) and long-term loans (term more than 1 year) made up 77% and 23% of total loans, respectively.
Nomura
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14 January 2011
Banks | China
Lucy Feng
Financial highlights
As at the end of 2009, the bank had total outstanding deposits and a loan balance of RMB32bn and RMB23bn, representing increases of 32% y-y and 42% y-y, respectively (source: company data, financial statements). Total NPLs amounted to RMB440mn, representing 1.89% of the total outstanding loan balance and a decrease of 37% y-y. The loan loss coverage ratio was 131.17%, an increase of 75.5%. The bank achieved an increase in net earnings of 8.6% y-y on net earnings of RMB344mn.
2007 1,135 854 281 (75) 206 206 2007 23,362 12,321 610 (245) 20,557 1,066
2008 1,494 1,092 402 (85) 317 317 2008 28,423 16,329 699 (389) 24,116 1,838
2009 y-y % chg y-y % chg 1,546 1,095 450 (106) 344 344 31.7 27.9 43.2 13.7 53.9 53.9 3.4 0.3 12.0 24.5 8.6 8.6
2009 y-y % chg y-y % chg 36,598 23,223 439 (576) 32,045 2,098 21.7 32.5 14.6 59.0 17.3 72.5 28.8 42.2 (37.2) 48.0 32.9 14.2
457 2.33 0.45 2007 75.26 26.70 0.88 19.31 59.94 4.98 40.11 8.55 8.87
689 2.67 0.46 2008 73.09 21.20 1.22 21.82 67.71 4.27 55.67 12.28 12.96
2009 y-y % chg y-y % chg 70.87 23.57 1.06 17.48 72.47 1.89 131.17 10.53 12.22 -2.2pct -5.5pct 0.3pct 2.5pct 7.8pct -71bps 15.6pct 3.7pct 4.1pct -2.2pct 2.4pct -0.2pct -4.3pct 4.8pct -238bps 75.5pct -1.8pct -0.7pct
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Lucy Feng
Leasing and business service 16% Public facilitation and social service 5% Manufactoring 71% Water supply, environment facilitation 3%
Source: Company data, Nomura research
Operational highlights
The banks main lines of business include loans, interbank deposits/lending and bond services. These three services generated total income of RMB1.6bn during 2009. Loan business alone generated profits of RMB1.1bn, representing 69% of total income. Included in all the loans provided, 43% are from manufacturing industry, 7% from wholesale and retail business, 5% from leasing and business services and 4% from real estate and construction (source: company data, financial statements).
Nomura
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14 January 2011
Banks | China
Lucy Feng
Financial highlights
As at the end of 2009, the bank had total outstanding deposits and a loan balance of RMB35bn and RMB22bn, representing increases of 23% y-y and 20% y-y, respectively. Total NPLs amounted to RMB211mn, representing 0.98% of the total outstanding loan balance and a decrease of 36% y-y. The bank achieved an increase in net earnings of 7.7% y-y on net earnings of RMB481mn (source: company data, financial statements).
2007 698 (288) 410 (62) 348 348 2007 30,187 15,096 208 na 24,357 1,869
2008 942 (437) 505 (58) 446 446 2008 35,703 18,184 333 na 28,456 2,333
2009 975 (410) 565 (85) 481 481 2009 40,371 21,759 211 (429) 35,002 2,593
y-y % chg 34.9 51.7 23.1 (5.7) 28.3 28.3 y-y % chg 18.3 20.5 59.7 na 16.8 24.8
y-y % chg 3.5 -6.3 12.0 44.5 7.7 7.7 y-y % chg 13.1 19.7 (36.5) na 23.0 11.2
576 3.24 0.67 2007 41.29 15.13 1.15 18.62 61.98 1.38 na 12.66 13.81
576 3.99 0.78 2008 46.42 11.59 1.35 21.25 63.90 1.83 na 12.79 14.78
576 4.44 0.84 2009 42.03 14.95 1.26 19.52 62.16 0.98 202.70 11.02 11.55
0.0 23.1 16.4 y-y % chg 5.1pct -3.5pct 0.2pct 2.6pct 1.9pct 45bps na 0.1pct 1.0pct
0.0 11.3 7.7 y-y % chg -4.4pct 3.4pct -0.1pct -1.7pct -1.7pct -85bps na -1.8pct -3.2pct
Nomura
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14 January 2011
Banks | China
Lucy Feng
Operational highlights
The banks main lines of business include loan, interbank deposits/lending and bond services. These three services generated total income of RMB7.0bn during 2009. The loan business alone generated profits of RMB5.8bn, representing 71% of total income. Included in all the loans provided, 18% of loans were to the real estate and mortgage industry, 16% were to the manufacturing industry, 14% were to leasing and business service companies and 4% were to wholesale and retail businesses (source: company data, financial statements). Total outstanding deposits in 2009 amounted to RMB179bn, which ranked the bank as no.9 with a market share of 4.85% in the Shanghai deposit business; outstanding loans amounted to RMB118bn, ranking the bank No. 7 with a market share of 5.21% in Shanghai (source: company data, financial statements).
Financial highlights
During 2009, the banks total outstanding deposits and loan balance increased by 21% y-y and 27% y-y, respectively. Total NPL amounted to RMB2.5bn, representing 1.88% of total outstanding loan balance and a decrease of 12% y-y. The bank achieved net earnings of RMB1.9bn in 2009 (source: company data, financial statements).
Nomura
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Lucy Feng
2007 4,774 (2,110) 2,665 1,690 72 943 676 4,355 (3,677) (1,556) (2,122) 678 na na 45 723 (352) 371 0 371 2007 157,474 79,438 1,093 (1,399) 126,616 11,159
2008 8,798 (3,474) 5,324 25 (4) 178 (171) 22 5,349 (2,084) (1,177) (907) 3,265 (226) (221) 890 3,930 (279) 3,651 0 3,651 2008 170,382 93,130 2,877 (1,929) 147,080 11,217
2009 8,057 (3,058) 4,999 28 10 187 (191) 22 5,027 (2,401) (1,342) (1,059) 2,626 (278) (258) 136 2,484 (515) 1,969 (2) 1,971 2009 212,250 118,778 2,543 (2,198) 179,234 13,069
2008 y-y % chg 84.3 64.7 99.8 (98.5) na 148.9 (118.2) (96.8) 22.8 (43.3) (24.4) (57.3) 382.0 na na 1,860.1 443.5 (20.8) 885.1 na 885.1 2008 y-y % chg 8.2 17.2 163.2 37.9 16.2 0.5
2009 y-y % chg (8.4) (12.0) (6.1) 11.2 (376.1) 4.7 11.4 0.7 (6.0) 15.3 14.1 16.8 (19.6) 23.0 16.8 (84.7) (36.8) 84.5 (46.1) na (46.0) 2009 y-y % chg 24.6 27.5 (11.6) 13.9 21.9 16.5
3,746 2.98 0.12 na 0.18 2007 38.27 48.74 0.24 3.32 62.7 1.4 127.94 na na 38.81 1.65 9.16 9.65
3,746 3.11 0.20 0.08 0.87 2008 35.95 7.10 2.23 32.63 63.3 3.1 67.05 5.46 0.26 0.47 3.33 11.80 12.02
3,746 3.48 0.53 0.09 0.70 2009 43.74 20.72 1.03 16.23 66.3 2.1 86.43 4.47 0.24 0.56 3.71 11.95 10.21
0.0 4.4 66.7 na 382.0 2008 y-y % chg -2.3pct -41.6pct 2.0pct 29.3pct 0.6pct 171bps -60.9pct na na -38.3pct 1.7pct 2.6pct 2.4pct
0.0 11.9 165.0 12.5 (19.6) 2009 y-y % chg 7.8pct 13.6pct -1.2pct -16.4pct 3.0pct -95bps 19.4pct -99bps -1bps 0.1pct 0.4pct 0.2pct -1.8pct
Nomura
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14 January 2011
Banks | China
Lucy Feng
Manufactoring 16%
Operational highlights
The banks main lines of business include loan, inter-bank deposits/lending and bond investment. These three services generate a total income of RMB511mn during 2009. Loan business alone generated profits of RMB410mn, representing 74% of total income. Total outstanding loans consist 69% of short-term loans and 31% medium- to long-term loans. Mortgage loans represent 21% of total outstanding loans.
Financial highlights
As at the end of 2009, the bank had total outstanding deposits and a loan balance of RMB13bn and RMB7bn, respectively, representing increases of 20% y-y and 16% y-y, respectively. Total NPLs amounted to RMB757mn, representing 8.81% of the total
Nomura
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Lucy Feng
outstanding loan balance and a decrease of 23.7% y-y. The bank made net earnings of RMB193mn (source: company data, financial statements).
Ratios (%) 1. CIR 2. Effective tax rate 3. ROA 4. ROE 5. Customer LDR 6. NPL ratio 7. Loan loss coverage 9. Credit costs 10. Non interest income as % total income 11. Fee income as % total income 12. Tier 1 CAR 13. CAR
Source: Company data, Nomura research
2007 63.05 0.00 0.79 26.80 60.74 19.85 8.14 0.72 14.67 5.02 na 5.44
2008 48.51 3.21 0.98 29.29 61.55 15.20 14.44 1.87 16.66 5.11 9.49 10.31
2009 55.93 25.36 0.65 11.41 59.44 10.00 24.56 1.65 21.70 5.58 19.86 22.19
2008 y-y % chg -14.5pct 3.2pct 0.2pct 2.5pct 0.8pct -465bps 6.3pct 115bps 2.0pct 0.1pct na 4.9pct
2009 y-y % chg 7.4pct 22.1pct -0.3pct -17.9pct -2.1pct -520bps 10.1pct -22bps 5.0pct 0.5pct 10.4pct 11.9pct
Nomura
64
14 January 2011
Banks | China
Lucy Feng
Farmers loan 1%
Operational highlights
Interest income, commission income and investment profits are the banks three major source of income. In total they generated a net income of RMB448mn during 2009. Loan business alone generated profits of RMB430mn, representing 95% of total income. Corporate loans and individual loans represent 93% and 7% of total outstanding loan balance. The top five corporate borrowers are from manufacturing, business trading, real estate, leasing and business service and transportation and storage industry (source: company data, financial statements).
Financial highlights
During 2009, the bank had total outstanding deposits and a loan balance of RMB11bn and RMB8bn respectively, representing increases of 26% y-y and 30% y-y. Total NPLs amounted RMB104mn, representing 1.29% of total outstanding loan balance and a decrease of 9.9% y-y. Loan loss coverage ratio increased by 86.9% y-y to 235.03%. Net earnings increased by 9.1% y-y, amounting to RMB141mn (source: company data, financial statements).
Nomura
65
14 January 2011
Banks | China
Lucy Feng
Nomura
66
14 January 2011
Banks | China
Lucy Feng
2008 569 (191) 378 12 1 8 3 390 (149) (65) (85) 241 (85) (75) 3 158 (29) 129 2008 9,813 6,241 116 (172) 8,810 720
2009 563 (132) 431 22 3 17 2 453 (181) (98) (82) 272 (100) (72) (2) 170 (29) 141 2009 12,275 8,121 104 (245) 11,063 842
y-y % chg (1.1) (30.6) 13.8 91.5 194.7 113.1 (24.2) 16.1 21.2 52.2 (2.6) 12.9 17.2 (4.2) (162.0) 7.7 1.5 9.1 y-y % chg 25.1 30.1 (9.9) 43.0 25.6 16.9
428 1.68 0.36 na 0.37 2008 38.25 18.20 1.32 17.98 70.84 1.86 148.12 1.20 2.96 2.05 10.73 13.73
513 1.64 0.31 0.03 0.33 2009 39.93 17.15 1.28 18.08 73.41 1.29 235.03 1.00 4.88 3.77 11.73 13.27
19.9 (2.5) (13.9) na (10.2) y-y % chg 1.7pct -1.1pct 0.0pct 0.1pct 2.6pct -57bps 86.9pct -20bps 1.9pct 1.7pct 1.0pct -0.5pct
Nomura
67
14 January 2011
Banks | China
Lucy Feng
Operational highlights
Loan business, interbank deposit/lending business and commission fees are the three major sources of income for the bank. In total they generated net income of RMB578mn during 2009. Loan business alone generated profits of RMB491mn, representing 85% of total income from principal activities (source: company data, financial statements). Loans provided to individual citizens and farmers represented the largest portion of all outstanding loans, making up 23% of total outstanding loans. Among the remaining corporate loans, 22% were for borrowers from the financial industry, followed by manufacturing, real estate and wholesale and retail industries. Corporate deposits and individual deposits amounted to RMB12.6bn and RMB4bn, representing 76% and 24% of total deposits balance placed by the end of 2009 (source: company data, financial statements).
Financial highlights
By the end of 2009, total outstanding deposits and the loan balance amounted to RMB17bn and RMB10bn, respectively; up 56.1% y-y and 25.6% y-y. Total NPLs amounted to RMB183mn, representing 1.92% of the total outstanding loan balance and a decrease of 23.7% y-y. Net earnings achieved an increase of 16.8% y-y, amounting to RMB117mn. Both total assets and total liabilities rose substantially by 51.0% y-y and 53.2% y-y, due to the increase in both outstanding loans and deposit size (source: company data, financial statements).
Others, 57%
Nomura
68
14 January 2011
Banks | China
Lucy Feng
2008 573 34 3 31 607 (476) 131 0 132 (32) 100 2008 13,038 7,597 240 3.16% 10,646 749
2009 571 83 6 77 655 (477) 177 2 179 (62) 117 2009 19,687 9,540 183 1.92% 16,613 866
y-y % chg (0.2) 141.5 83.9 147.7 7.9 0.3 35.2 331.1 36.2 97.8 16.8 y-y % chg 51.0 25.6 (23.7) (39.2) 56.1 15.6
533 1.40 0.19 2008 78.37 23.97 0.77 13.37 71.36 3.16 0.00 5.16 0.00 5.68 0.55
598 1.45 0.20 2009 72.89 34.82 0.71 14.48 57.43 1.92 0.00 4.07 0.00 12.71 0.94
12.0 3.2 4.2 y-y % chg -5.5pct 10.9pct -0.1pct 1.1pct -13.9pct -124bps 0.0pct -109bps 0bps 7.0pct 0.4pct
Operational highlights
Loans provided to the manufacturing industry are the largest portion of outstanding loans, making up 31%, followed by wholesale and retail industry borrowers, water supply & environment and public facility, real estate and leasing and business service industries. Corporate deposits and individual deposits amounted to RMB25.3bn and RMB52.7bn, representing 29.8% and 62.3% of total deposits balance placed by the end of 2009 (source: company data, financial statements).
Financial highlights
By the end of 2009, total outstanding deposits and the loan balance amounted to RMB84.7bn and RMB49.7bn, respectively; up 20.3% y-y and 24.6% y-y. Total NPLs
Nomura
69
14 January 2011
Banks | China
Lucy Feng
amounted to RMB1.2bn, representing 2.38% of total outstanding loan balance and a decrease of 40.5% y-y. Net earnings achieved an increase of 20.4% y-y, amounting to RMB954mn. Both total assets and total liabilities rose substantially by 32.4% y-y and 27.7% y-y, due to the increase in both outstanding loans and deposit size (source: company data, financial statements).
2007 2,954 (2,403) 551 (201) 349 2007 69,996 37,284 3,501 1,879 61,126 2,358
2008 3,761 (2,757) 1,004 (211) 793 2008 76,689 39,895 1,988 2,031 70,384 3,456
2009 3,465 (2,256) 1,209 (254) 954 2009 101,558 49,719 1,183 1,771 84,688 8,068
2008 y-y % chg 27.3 14.7 82.3 4.6 127.1 2008 y-y % chg 9.6 7.0 (43.2) 8.1 15.1 46.5
2009 y-y % chg (7.9) (18.2) 20.4 20.7 20.4 2009 y-y % chg 32.4 24.6 (40.5) (12.8) 20.3 133.5
864 2.73 0.40 2007 81.36 36.57 0.50 14.81 61.00 9.39 53.66 5.27 6.27
1,309 2.64 0.61 2008 73.31 20.99 1.08 27.28 56.68 4.98 102.14 8.13 10.86
1,855 4.35 0.51 2009 65.11 21.04 1.07 16.57 58.71 2.38 149.76 15.55 17.33
51.5 (3.3) 49.8 2008 y-y % chg -8.0pct -15.6pct 0.6pct 12.5pct -4.3pct -441bps 48.5pct 2.9pct 4.6pct
41.7 64.8 (15.1) 2009 y-y % chg -8.2pct 0.1pct 0.0pct -10.7pct 2.0pct -260bps 47.6pct 7.4pct 6.5pct
Nomura
70
14 January 2011
Banks | China
Lucy Feng
Operational highlights
Jilin Jiutai is the largest local commercial bank, with a market share of 51.71% in deposit business and 40.34% in loan business in Jiutai city. Loan business itself contributes 78.89% of the banks operating income. Among all the loans made, 87.24% is to local residents for agricultural/fishing production purposes. The banks other main profit-generating businesses include bond investments and inter-bank deposits/lending, representing 14.06% and 9.15% of total operating income, respectively (source: company data, financial statements).
Financial highlights
As at the end of 2009, the bank had total assets and total debt of RMB5.8bn and RMB5.4bn, respectively. Both deposits and loan size experienced a significant increase of 31.73% y-y to RMB5.1bn and 46.31% y-y to RMB2.5bn. NPLs amounted to RMB2.7mn, representing 1.09% of total outstanding loans. The bank achieved earnings of RMB83mn by the end of 2009, together with a total of RMB119mn operating expenses incurred, leading to a slight drop of 9.8% y-y in earnings (source: company data, financial statements).
Nomura
71
14 January 2011
Banks | China
Lucy Feng
2007 249 (62) 187 (24) (27) 3 162 (54) 109 2007 3,286 1,265 38 (23) 2,662 325
2008 241 (69) 172 (25) (49) 23 147 (55) 92 2008 4,427 1,713 34 (30) 3,874 371
2009 257 (55) 202 34 2 32 236 (119) 83 2009 5,849 2,506 27 (28) 5,104 400
y-y % chg (3.1) 11.0 (7.9) 3.4 78.1 693.9 (9.5) 2.2 (15.1) y-y % chg 34.7 35.4 (11.1) 29.9 45.5 14.0
y-y % chg 6.5 (20.2) 17.3 (235.6) (103.7) 38.5 60.7 117.2 (9.8) y-y % chg 32.1 46.3 (21.4) (8.5) 31.7 7.8
301 1.08 0.36 2007 38.27 0.00 3.31 33.48 47.50 3.03 60.41 0.00 (15.03) (16.85) na
300 1.24 0.31 2008 35.95 0.00 2.40 26.55 44.21 1.99 88.28 0.00 (17.18) (33.18) 20.34
300 1.33 0.28 2009 43.74 24.30 1.62 21.62 49.10 1.07 102.72 0.33 14.49 0.76 11.82
(0.4) 14.5 (14.8) y-y % chg -2.3pct 0.0pct -0.9pct -6.9pct -3.3pct -104bps 27.9pct 0bps -2.2pct -16.3pct na
0.0 7.8 (9.8) y-y % chg 7.8pct 24.3pct -0.8pct -4.9pct 4.9pct -92bps 14.4pct 33bps 31.7pct 33.9pct -8.5pct
Operational highlights
Jiangyin Rural Commercial Bank had total deposits and a loan balance of RMB35,841mn and RMB25,356mn, respectively, by end-2009. Loans to manufacturing industry were the largest portion of outstanding loans, making up 68%, followed by wholesale and retail industry and the water supply and public facility industry (source: company data, financial statements).
Financial highlights
The bank reported an end-2009 net profit of RMB628mn, up by 5.2% y-y. Total assets amounted to RMB41,572mn, up by 29.7% y-y. The bank reported NPLs of RMB403mn by the end of 2007, leading to an NPL ratio of 2.49%. No NPL-related information has
Nomura
72
14 January 2011
Banks | China
Lucy Feng
been released since 2007. The bank reported CAR and T1 CAR ratios of 11.73% and 10.92%, respectively, at the end of 2009 (source: company data, financial statements).
Real estate 3%
Manufacturing 68%
Nomura
73
14 January 2011
Banks | China
Lucy Feng
2007 1,363 (419) 944 39 5 15 17 2 983 (227) (79) (148) 756 (41) (46) (6) 708 (225) 483 0 483 2007 28,096 16,201 403 404 23,623 1,558
2008 1,842 (506) 1,335 26 7 14 3 2 1,361 (293) (100) (193) 1,069 (299) (293) (6) 764 (166) 598 1 597 2008 32,058 19,832 na 508 28,317 2,169
2009 1,666 (437) 1,229 49 8 24 16 2 1,279 (362) (173) (189) 916 (120) (125) 12 808 (181) 627 (1) 628 2009 41,572 25,356 na 588 35,841 2,717
y-y % chg 35.1 20.8 41.4 (32.3) 51.3 (9.4) (81.7) 17.3 38.5 29.0 26.6 30.3 41.4 628.4 533.4 (11.3) 7.8 (26.4) 23.8 na 23.7 y-y % chg 14.1 22.4 na na 19.9 39.3
y-y % chg (9.5) (13.7) (7.9) 86.7 10.0 72.5 398.7 (10.9) (6.1) 23.7 72.9 (1.9) (14.2) (59.8) (57.2) (308.4) 5.8 9.2 4.9 (309.0) 5.2 y-y % chg 29.7 27.9 na na 26.6 25.3
520 2.99 0.93 2007 (23.09) 31.80 1.87 36.02 68.58 2.49 100.36 0.32 3.97 1.53 na 10.75
624 3.48 0.87 2008 (21.51) 21.71 1.99 32.06 70.03 na na 1.62 1.94 1.00 12.78 13.70
687 3.96 0.91 2009 (28.32) 22.40 1.70 25.72 70.74 na na 0.55 3.86 1.84 10.92 11.73
20.0 16.1 (6.3) y-y % chg 1.6pct -10.1pct 0.1pct -4.0pct 1.5pct na na 131bps -2.0pct -0.5pct na 3.0pct
10.0 13.8 4.6 y-y % chg -6.8pct 0.7pct -0.3pct -6.3pct 0.7pct na na -107bps 1.9pct 0.8pct -12.8pct -2.0pct
Nomura
74
14 January 2011
Banks | China
Lucy Feng
Operational highlights
Jiangsu Wujiang Rural Commercial Bank had total deposits and a loan balance of RMB28,657mn and RMB19,892mn, respectively, by end-2009, for the largest market shares of 25.18% and 21.95%, respectively, in Jiangsu Wujiang City. Loans to the manufacturing industry are the largest portion of all outstanding loans, at 57%, followed by wholesale and retail industry and construction industry (source: company data, financial statements).
Financial highlights
The bank reported an end-2009 net profit of RMB369mn, flattish y-y. Total assets amounted to RMB31,558mn, up by 21.8% y-y. The bank reported NPLs of RMB366mn by the end of 2009, leading to an NPL ratio of 1.85%. The bank reported CAR and T1 CAR ratios of 13.24% and 9.35%, respectively, by the end of 2009 (source: company data, financial statements).
Manufacturing 57%
Civil service 2%
Nomura
75
14 January 2011
Banks | China
Lucy Feng
2007 1,177 (306) 872 26 7 12 3 4 898 (372) na na 526 10 na 26 562 (230) 332 (0) 331 2007 21,219 13,448 258 242 19,329 1,340
2008 1,436 (448) 988 30 7 13 5 4 1,017 (384) na na 633 (227) na 61 467 (98) 370 0 370 2008 25,907 15,983 403 465 23,308 1,658
2009 1,369 (422) 947 43 6 18 15 4 990 (425) na na 565 (114) na 29 479 (110) 369 0 369 2009 31,558 19,892 366 573 28,657 1,977
y-y % chg 22.0 46.6 13.3 12.9 (0.2) 14.3 64.3 (6.6) 13.3 3.1 na na 20.5 (2,298.8) na 133.9 (16.8) (57.5) 11.5 na 11.6 y-y % chg 22.1 18.8 56.2 92.3 20.6 23.7
y-y % chg (4.7) (5.9) (4.1) 43.8 (15.6) 31.4 184.8 8.0 (2.7) 10.8 na na (10.9) (49.6) na (52.5) 2.5 12.8 (0.2) 249.6 (0.1) y-y % chg 21.8 24.5 -9.1 23.3 22.9 19.2
430 3.12 0.60 2007 (41.46) 40.99 1.56 24.73 69.58 1.92 93.67 na 2.93 1.31 na 10.23
559 2.97 0.66 2008 (37.74) 20.93 1.57 24.66 68.57 2.52 115.34 na 2.92 1.32 9.90 14.01
559 3.54 0.65 2009 (42.96) 23.04 1.28 20.32 69.41 1.85 156.49 na 4.32 1.79 9.35 13.24
30.0 (4.8) 10.0 y-y % chg 3.7pct -20.1pct 0.0pct -0.1pct -1.0pct 60.3pct 21.7pct na 0.0pct 0.0pct na 3.8pct
0.0 19.2 (1.5) y-y % chg -5.2pct 2.1pct -0.3pct -4.3pct 0.8pct -67.1pct 41.2pct na 1.4pct 0.5pct -0.6pct -0.8pct
Nomura
76
14 January 2011
Banks | China
Lucy Feng
Balance Sheet Items (RMBmn) Total Assets Gross Loans Total deposits Shareholders Funds (Equity)
Nomura
77
14 January 2011
Banks | China
Lucy Feng
Appendix
Exhibit 140. Adjustments in Reserve Requirement Ratio (RRR)
# Time 37 36 35 34 Date Dec 20, 2010 Nov 29, 2010 Nov 16, 2010 Oct 11, 2010 (See Note 2) 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 May 2, 2010 Feb 12, 2010 Jan 12, 2010 Dec 22, 2008 Nov 26, 2008 Oct 8, 2008 Sep 15, 2008 Jun 7, 2008 May 12, 2008 Apr 16, 2008 Mar 18, 2008 Jan 16, 2008 Dec 8, 2007 Nov 10, 2007 Oct 13, 2007 Sep 6, 2007 Jul 30, 2007 May 18, 2007 Apr 29, 2007 Apr 5, 2007 Feb 16, 2007 Jan 5, 2007 Nov 15, 2006 Aug 15, 2006 Jul 5, 2006 Apr 25, 2004 Sep 21, 2003 Nov 21, 1999 Mar 21, 2998 Sep-88 1987 1985 1984 Big banks Small and medium banks Big banks Small and medium banks Big banks Small and medium banks Big banks Small and medium banks Big banks Small and medium banks Big banks Small and medium banks Big banks Small and medium banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks All banks 16.5 14.5 16.0 14.0 15.5 13.5 16.0 14.0 17.0 16.0 17.5 16.5 17.5 17.5 17.0 16.5 16.0 15.5 15.0 14.5 13.5 13.0 12.5 12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.0 8.0 13.0 12.0 10.0 RRR is set to 10% for all banks by PBoC RRR is set according to loan categories by PBoC: corporate loans 20%, rural loans 25%, savings loans 40% 17.0 15.0 16.5 14.5 16.0 14.0 15.5 13.5 16.0 14.0 17.0 16.0 17.5 16.5 17.5 17.0 16.5 16.0 15.5 15.0 14.5 13.5 13.0 12.5 12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.0 8.0 13.0 12.0 0.5 0.5 0.5 0.5 0.5 0.5 -0.5 -0.5 -1.0 -2.0 -0.5 0.0 -1.0 0.5 0.5 0.5 0.5 0.5 0.5 1.0 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 1.0 -2.0 -5.0 1.0 2.0 Big banks Small and medium banks Big banks Small and medium banks Big banks Small and medium banks Big banks Small and medium banks Before adjustment (%) After adjustment (%) 18.5 16.0 18.0 15.5 17.5 15.0 17.0 15.0 19.0 16.5 18.5 16.0 18.0 15.5 17.5 15.0 Change (%) 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.0
Note 1: Big banks refer to ICBC (1398.HK), ABC, BOC (3988.HK), CCB (0939.HK), BCOM (3328.HK) and the Postal Deposit Bank, with small and medium banks the rest. Note 2: 50bps hike for ICBC, ABC, CCB, BOC, CMB and Minsheng from 15 Oct 10 to 14 Dec 10. (2 months) This special RRR hike is extended for ICBC, ABC, CCB and Minsheng for another 3 months to 15 Mar 2011. Source: PBoC, Nomura research
Nomura
78
14 January 2011
Banks | China
Lucy Feng
Deposit rate (%) Demand Time -3 months -6 months -1 yr -2 yrs -3 yrs -5 yrs 2.79 3.33 3.78 3.96 4.14 4.50 1.98 2.16 2.25 2.43 2.70 2.88 1.71 1.89 1.98 2.25 2.52 2.79 1.71 2.07 2.25 2.70 3.24 3.60 1.71 2.07 2.25 2.70 3.24 3.60 1.80 2.25 2.52 3.06 3.69 4.14 1.98 2.43 2.79 3.33 3.96 4.41 2.07 2.61 3.06 3.69 4.41 4.95 2.34 2.88 3.33 3.96 4.68 5.22 2.61 3.15 3.60 4.23 4.95 5.49 2.88 3.42 3.87 4.50 5.22 5.76 3.33 3.78 4.14 4.68 5.40 5.85 3.15 3.51 3.87 4.41 5.13 5.58 3.15 3.51 3.87 4.41 5.13 5.58 2.88 3.24 3.60 4.14 4.77 5.13 1.98 2.25 2.52 3.06 3.60 3.87 1.71 1.98 2.25 2.79 3.33 3.60 1.91 2.20 2.50 3.25 3.85 4.20 2.25 2.50 2.75 3.55 4.15 4.55 1.44 0.99 0.72 0.72 0.72 0.72 0.72 0.72 0.81 0.81 0.81 0.72 0.72 0.72 0.72 0.36 0.36 0.36 0.36
27bps 27bps
27bps 0bps
27bps 27bps
27bps 27bps
18bps 27bps
27bps 27bps
18bps 27bps
27bps 27bps
18bps -27bps -27bps -27bps -108bps -27bps 27bps -27bps 0bps -27bps -108bps -27bps
25bps 25bps
25bps 25bps
Nomura
79
14 January 2011
Banks | China
Lucy Feng
5,287,194 6,097,428
Nomura
80
14 January 2011
Banks | China
Lucy Feng
Balance(RMBmn) 2003 CITIC Bank Demand deposit -Corporate deposits -Personal deposits Time deposit -Corporate deposits -Personal deposits Total Minsheng Bank Demand deposit -Corporate deposits -Personal deposits Time deposit -Corporate deposits -Personal deposits Other deposits Total 156,619 131,120 25,499 711 274,816 117,486 117,486 154,691 138,590 16,101 184,195 156,865 27,330 85 338,970 185,634 160,238 25,396 232,092 183,548 48,545 152 417,879 244,821 214,216 30,605 337,746 273,681 64,065 748 583,315 294,191 264,006 30,185 375,987 298,638 77,349 1,041 671,219 329,196 295,597 33,599 454,944 352,275 102,669 1,646 785,786 548,316 497,422 50,894 578,356 435,146 143,210 1,266 1,127,938 42.8 42.8 0.0 57.0 47.7 9.3 0.3 100.0 45.6 40.9 4.7 54.3 46.3 8.1 0.0 100.0 165,654 159,876 5,778 179,702 153,176 26,526 345,356 185,917 179,106 6,811 249,103 208,140 40,963 435,020 243,043 232,933 10,110 287,530 226,388 61,142 530,573 287,024 260,971 26,053 331,388 251,580 79,808 618,412 404,974 338,074 66,900 382,237 301,931 80,306 787,211 424,480 384,024 40,456 521,355 389,675 131,680 945,835 648,391 581,483 66,908 693,536 516,369 177,167 1,341,927 48.0 46.3 1.7 52.0 44.4 7.7 100.0 42.7 41.2 1.6 57.3 47.8 9.4 100.0 2004 2005 2006 2007 2008 2009 2003 2004
As % of total 2005 45.8 43.9 1.9 54.2 42.7 11.5 100.0 2006 46.4 42.2 4.2 53.6 40.7 12.9 100.0 2007 51.4 42.9 8.5 48.6 38.4 10.2 100.0 2008 44.9 40.6 4.3 55.1 41.2 13.9 100.0 2009 48.3 43.3 5.0 51.7 38.5 13.2 100.0
Nomura
81
14 January 2011
Banks | China
Lucy Feng
3,289,553 3,631,171
2,458,398 2,873,609
2,235,265 2,432,019
Nomura
82
14 January 2011
Banks | China
Lucy Feng
Balance (RMBmn) 2003 CITIC Bank Yangtze River Delta Pearl River Delta Bohai Rim* Central China Northeastern China Western China Hong Kong Total Minsheng Northern China Eastern China Southern China Other regions Total na na na na na na na na na na na na na na na 159,511 150,157 81,462 80,958 472,088 174,754 186,760 92,202 101,243 554,959 191,011 236,412 95,388 135,549 658,360 276,820 319,054 95,762 191,343 882,979 na na na na na 70,051 46,780 89,770 21,396 7,961 21,075 280 257,313 91,672 49,491 100,195 27,477 9,880 27,943 221 306,879 120,026 52,885 115,706 36,255 13,207 32,029 152 370,260 146,784 68,230 138,310 46,704 19,141 43,820 178 463,167 182,058 90,358 167,329 60,410 19,065 55,780 208 575,208 205,670 100,366 188,308 74,566 23,536 72,068 410 664,924 284,055 145,222 293,907 133,009 34,965 113,499 60,992 1,065,649 27.2 18.2 34.9 8.3 3.1 8.2 0.1 100.0 29.9 16.1 32.6 9.0 3.2 9.1 0.1 100.0 2004 2005 2006 2007 2008 2009 2003 2004
As % of total 2005 32.4 14.3 31.2 9.8 3.6 8.7 0.0 100.0 2006 31.7 14.7 29.9 10.1 4.1 9.5 0.0 100.0 2007 31.7 15.7 29.1 10.5 3.3 9.7 0.0 100.0 2008 30.9 15.1 28.3 11.2 3.5 10.8 0.1 100.0 2009 26.7 13.6 27.6 12.5 3.3 10.7 5.7 100.0
na na na na na
na na na na na
Nomura
83
14 January 2011
Banks | China
Lucy Feng
Note: ABC, BOC and Minsheng data not available. Source: Banks Annual reports, Nomura research
Nomura
84
14 January 2011
Banks | China
Lucy Feng
na 100.0% 100.0%
829,342 1,206,850
821,531 1,088,459
Nomura
85
14 January 2011
Banks | China
Lucy Feng
Gross loans breakdown by business line (RMBmn) 2003 BOC Corporate loans - Manufacturing - Transportation & logistics - Energy, mining and agriculture - Production and supply of electric power, gas and water - Commerce & services - Real estate - Construction - Water, environment and public utility management - Public utilities - Financial services - Others Total corporate loans Personal loans - personal mortgage loans - credit card - Others Total personal loans Total loans to customers BCOM Corporate loans - Manufacturing - Transportation and telecommunication - Utilities - Services - Property development - Construction - Others Total corporate loans Personal loans - mortgage loans - car loans - Others Total personal loans Discounted bills Interest receivables Total loans to customers CMB Corporate loans - Manufacturing - Transportation and telecommunication - Production and supply of electric power, gas and water - Property development - Construction - Wholesale, retail - Others Total corporate loans Personal loans - residential mortgage loans - credit card - Others Total personal loans Discounted bills Overseas Total loans to customers 307,507 374,017 472,185 565,702 673,167 26,820 891 6,898 34,609 62,224 46,483 2,157 6,121 54,761 60,886 64,609 4,550 4,877 74,036 99,527 81,383 10,146 10,454 101,983 103,836 131,138 21,324 22,564 175,026 52,276 148,452 31,604 39,286 219,342 95,766 40,814 263,997 39,942 65,076 369,015 102,549 56,896 100.0 100.0 8.7 0.3 2.2 11.3 20.2 12.4 0.6 1.6 14.6 16.3 47,210 48,086 28,365 14,890 7,407 30,332 34,384 210,674 61,621 59,967 39,292 17,971 8,703 32,081 38,735 258,370 75,735 66,154 44,820 20,089 11,305 33,966 46,553 298,622 103,870 77,181 38,260 26,686 12,668 31,003 70,215 359,883 132,652 75,827 40,901 43,181 17,145 58,441 77,718 445,865 158,018 90,391 62,063 47,233 22,774 56,897 81,064 518,440 191,890 106,456 65,797 63,611 26,027 75,310 128,271 657,362 15.4 15.6 9.2 4.8 2.4 9.9 11.2 68.5 16.5 16.0 10.5 4.8 2.3 8.6 10.4 69.1 42,596 6,156 11,435 60,187 24,038 1,184 549,943 63,978 5,113 16,686 85,777 43,996 1,274 640,058 78,264 3,961 21,828 104,053 60,876 1,834 771,374 88,224 3,932 33,972 126,128 72,805 2,580 112,941 4,534 54,999 172,474 31,480 na 133,415 4,271 67,372 205,058 69,733 na 198,695 4,894 107,049 310,638 101,872 na 7.7 1.1 2.1 10.9 4.4 0.2 100.0 10.0 0.8 2.6 13.4 6.9 0.2 100.0 157,635 47,276 24,723 28,530 53,970 17,124 65,329 464,534 180,021 58,550 36,125 33,978 63,321 20,916 48,254 509,011 210,359 79,312 51,812 56,024 60,913 25,958 47,256 604,611 240,745 104,491 63,289 79,630 65,962 35,961 53,869 725,892 278,706 133,727 79,411 37,267 77,592 46,206 247,627 321,501 148,935 92,207 49,990 88,568 52,261 300,337 378,694 226,757 183,704 81,669 129,325 55,387 371,268 28.7 8.6 4.5 5.2 9.8 3.1 11.9 84.5 28.1 9.1 5.6 5.3 9.9 3.3 7.5 79.5 275,303 4,944 103,146 383,393 360,595 5,973 127,473 494,041 413,007 6,785 103,211 523,003 456,930 8,458 117,356 582,744 577,655 10,677 144,252 732,584 635,000 16,495 151,937 907,912 31,336 208,234 12.7 0.2 4.8 17.7 100.0 16.8 0.3 5.9 23.0 100.0 75,465 48,261 35,673 87,731 46,518 35,072 91,924 96,245 40,191 106,141 72,909 36,544 70,601 53,474 88,697 430,993 216,734 44,548 348,432 187,110 36,059 301,863 190,297 36,050 301,254 217,960 38,897 357,702 247,481 45,343 559,348 177,664 188,821 523,732 185,449 203,544 531,410 193,428 230,854 603,078 211,786 260,706 687,925 266,905 299,849 778,219 1,059,185 318,328 103,938 310,806 410,830 271,484 51,606 54,448 68,589 74,321 50,145 489,527 197,414 353,284 725,227 366,630 60,558 251,154 84,329 111,515 64,053 3.5 2.2 1.7 82.3 4.1 2.2 1.6 77.0 19.9 10.0 2.1 16.2 8.7 1.7 25.9 8.2 8.7 24.4 8.6 9.5 2004 2005 2006 2007 2008 2009 2003 2004
23.8 8.7 10.3 13.5 8.5 1.6 4.1 4.3 1.8 76.6 18.5 0.3 4.6 23.4 100.0
24.8 8.7 10.7 12.4 9.0 1.6 4.4 3.0 1.5 76.0 18.8 0.3 4.8 24.0 100.0
24.1 9.4 10.5 12.5 8.7 1.6 2.5 1.9 3.1 74.3 20.3 0.4 5.1 25.7 100.0
23.6 9.7 3.2 9.4 12.5 8.2 1.6 1.7 2.1 2.3 1.5 75.6 19.3 0.5 4.6 24.4 100.0
21.6 10.0 4.0 7.2 14.8 7.5 1.2 5.1 1.7 2.3 1.3 76.6 18.5 0.6 4.2 23.4 100.0
803,432 1,147,482
27.3 10.3 6.7 7.3 7.9 3.4 6.1 78.4 10.1 0.5 2.8 13.5 7.9 0.2 100.0
26.0 11.3 6.8 8.6 7.1 3.9 5.8 78.3 9.5 0.4 3.7 13.6 7.9 0.3 100.0
25.2 12.1 7.2 3.4 7.0 4.2 22.4 81.5 10.2 0.4 5.0 15.6 2.9 na 100.0
24.2 11.2 6.9 3.8 6.7 3.9 22.6 79.3 10.0 0.3 5.1 15.4 5.2 na 100.0
20.6 12.3 10.0 4.4 7.0 3.0 20.2 77.6 0.0 10.8 0.3 5.8 16.9 5.5 na 100.0
16.0 14.0 9.5 4.3 2.4 7.2 9.9 63.2 13.7 1.0 1.0 15.7 21.1 100.0
18.4 13.6 6.8 4.7 2.2 5.5 12.4 63.6 14.4 1.8 1.8 18.0 18.4 100.0
19.7 11.3 6.1 6.4 2.5 8.7 11.5 66.2 19.5 3.2 3.4 26.0 7.8 100.0
18.1 10.3 7.1 5.4 2.6 6.5 9.3 59.3 17.0 3.6 4.5 25.1 11.0 4.7 100.0
16.2 9.0 5.5 5.4 2.2 6.4 10.8 55.4 0.0 22.3 3.4 5.5 31.1 8.6 4.8 100.0
874,362 1,185,822
Nomura
86
14 January 2011
Banks | China
Lucy Feng
Gross loans breakdown by business line (RMBmn) 2003 CITIC Bank Corporate loans - Total Manufacturing - Transportation, storage and post service - Production & supply of electricity , gas & water - Wholesale and retail - Real estate - Water, environmental and public utility mgt - Rent and business services - Construction - Others Total corporate loans Personal loans - Residential mortgage loans - credit card loans - Others Total personal loans Discounted bills Total loans to customers SPDB Corporate loans - Manufacturing - Public utilities - Constructions - Transportation & telecom - Wholesale, retails & entertainment - Real estate - Social services - Others Total corporate loans Personal loans - Residential mortgage loans - Personal consumer loans - Credit card loans - Others Total loans to customers Minsheng Corporate loans - Manufacturing - Trading - Real estate - Transportation - Telecom - Construction - Conglomerates - Public utilities - Education & social service - Rental & commercial service - Financials - Others Total corporate loans Personal loans - Residential mortgage loans - Credit card - Others Discounted bills Total loans to customers 50,255 18,724 23,598 14,493 8,957 6,826 6,733 5,510 7,778 4,569 8,545 8,855 164,843 23,853 na na na 21,622 201,773 79,763 16,770 31,407 21,879 7,834 10,144 11,298 9,929 8,215 7,180 11,338 11,020 226,777 42,983 na na na 29,940 288,362 97,993 13,788 40,318 29,799 6,548 12,755 6,957 17,162 10,722 9,914 8,288 11,864 266,108 57,167 54,785 174 2,209 83,309 406,544 124,566 17,104 52,714 39,743 5,818 20,860 8,196 26,529 14,312 18,179 11,922 17,523 357,466 68,574 65,334 1,169 2,071 57,970 472,088 24,786 37,678 50,563 17,418 26,687 8,704 36,924 420,837 99,460 89,589 5,426 4,445 34,662 554,959 106,276 26,108 71,903 48,452 103,132 25,811 90,158 69,840 4,960 25,307 na 46,761 14,290 51,045 25,135 93,350 485,858 108,571 87,401 12,727 8,443 63,931 658,360 121,940 35,772 103,713 75,137 3,816 26,144 na 48,515 22,125 94,644 37,835 149,458 719,099 163,880 99,619 14,266 49,995 35,221 882,979 23.9 8.9 11.2 6.9 4.3 3.2 3.2 2.6 3.7 2.2 4.1 4.2 78.4 2.6 Na Na Na 2.4 100.0 26.6 5.6 10.5 7.3 2.6 3.4 3.8 3.3 2.7 2.4 3.8 3.7 75.7 4.8 Na Na Na 3.3 100.0 76,948 9,711 9,031 14,400 35,347 29,473 16,308 35,000 226,217 29,631 na na na na 255,848 94,042 12,959 11,127 17,757 37,614 37,148 17,703 33,670 262,021 49,101 na na na na 311,122 111,050 19,356 12,774 21,685 53,306 37,516 22,893 42,029 320,610 56,613 na na na na 377,223 124,163 23,772 20,952 24,264 53,459 48,972 43,017 60,376 398,975 61,918 na na na na 460,893 140,517 29,801 30,680 35,872 59,142 58,733 36,263 69,711 460,719 90,269 81,816 3,138 na 5,316 550,988 174,664 48,264 37,966 50,609 69,121 63,953 46,678 98,489 589,744 107,821 94,909 na 4,631 8,281 697,565 202,455 48,229 48,253 69,334 88,316 80,904 64,660 168,956 771,107 157,748 138,980 5,188 na 13,580 928,855 30.1 3.8 3.5 5.6 13.8 11.5 6.4 13.7 88.4 11.6 na na na na 100.0 30.2 4.2 3.6 5.7 12.1 11.9 5.7 10.8 84.2 15.8 na na na na 100.0 8,149 3,835 1,740 17,237 45,559 257,313 17,838 7,372 1,787 31,730 18,727 306,879 26,246 6,162 1,455 37,834 50,151 370,260 36,470 5,863 2,091 48,375 45,636 463,167 60,833 4,145 11,111 76,089 33,599 575,208 73,000 6,218 12,222 91,439 43,539 114,156 14,191 19,893 148,240 94,774 3.2 1.5 0.7 6.7 17.7 100.0 5.8 2.4 0.6 10.3 6.1 100.0 51,860 20,882 9,857 23,099 25,313 10,926 7,370 8,752 36,458 194,517 71,247 22,459 23,825 26,023 27,640 18,109 14,538 13,980 38,601 256,422 81,537 23,633 26,559 29,902 22,957 20,811 18,566 15,963 42,347 282,275 108,539 35,933 38,022 33,468 28,796 26,915 29,375 23,364 44,744 369,156 145,272 62,856 44,392 42,239 41,741 28,324 34,793 22,199 43,704 465,520 163,164 62,938 57,199 48,855 42,225 58,596 31,396 23,739 45,510 533,622 210,446 102,557 85,106 85,872 46,312 74,604 49,900 34,554 133,284 822,635 20.2 8.1 3.8 9.0 9.8 4.2 2.9 3.4 14.2 75.6 23.2 7.3 7.8 8.5 9.0 5.9 4.7 4.6 12.6 83.6 2004 2005 2006 2007 2008 2009 2003 2004
22.0 6.4 7.2 8.1 6.2 5.6 5.0 4.3 11.4 76.2 7.1 1.7 0.4 10.2 13.5 100.0
23.4 7.8 8.2 7.2 6.2 5.8 6.3 5.0 9.7 79.7 7.9 1.3 0.5 10.4 9.9 100.0
25.3 10.9 7.7 7.3 7.3 4.9 6.0 3.9 7.6 80.9 10.6 0.7 1.9 13.2 5.8 100.0
24.5 9.5 8.6 7.3 6.4 8.8 4.7 3.6 6.8 80.3 11.0 0.9 1.8 13.8 6.5 100.0
19.7 9.6 8.0 8.1 4.3 7.0 4.7 3.2 12.5 77.2 0.0 10.7 1.3 1.9 13.9 8.9 100.0
664,924 1,065,649
29.4 5.1 3.4 5.7 14.1 9.9 6.1 11.1 85.0 15.0 na na na na 100.0
26.9 5.2 4.5 5.3 11.6 10.6 9.3 13.1 86.6 13.4 na na na na 100.0
25.5 5.4 5.6 6.5 10.7 10.7 6.6 12.7 83.6 16.4 14.8 0.6 na 1.0 100.0
25.0 6.9 5.4 7.3 9.9 9.2 6.7 14.1 84.5 15.5 13.6 na 0.7 1.2 100.0
21.8 5.2 5.2 7.5 9.5 8.7 7.0 18.2 83.0 17.0 15.0 0.6 na 1.5 100.0
21.1 3.0 8.7 6.4 1.4 2.8 1.5 3.7 2.3 2.1 1.8 2.6 57.4 6.3 11.8 0.0 0.5 18.0 100.0
22.5 3.1 9.5 7.2 1.1 3.8 1.5 4.8 2.6 3.3 2.2 3.2 64.7 7.6 11.8 0.2 0.4 10.5 100.0
16.2 4.0 11.0 7.4 0.0 3.8 5.8 7.7 2.7 4.1 1.3 5.6 64.3 11.0 13.7 0.8 0.7 5.3 100.0
13.4 3.4 11.8 9.1 0.6 3.3 na 6.1 1.9 6.7 3.3 12.2 63.4 12.0 11.4 1.7 1.1 8.3 100.0
13.8 4.1 11.7 8.5 0.4 3.0 na 5.5 2.5 10.7 4.3 16.9 81.4 18.6 11.3 1.6 5.7 4.0 100.0
Nomura
87
14 January 2011
Banks | China
Lucy Feng
Nomura
88
14 January 2011
Banks | China
Lucy Feng
Amount (RMBmn) 2005 CITIC Bank Overdue/on demand less than 3 months 3 months to 1 yr 1 to 5 yr more than 5 yrs undated Total loans Minsheng Bank Overdue/on demand less than 1 month 1 to 3 months 3 months to 1 yr 1 to 5 yr more than 5 yrs undated Total loans na na na na na na na na na 19,452 60,974 202,858 78,833 96,530 7,024 465,671 na 56,899 57,375 109,681 253,667 62,580 7,094 547,296 na 37,712 77,581 272,225 139,131 110,108 9,718 646,475 na 51,676 96,156 321,357 271,614 122,137 4,798 867,738 na na na na na na na na na 192.5 -5.9 -45.9 221.8 -35.2 1.0 17.5 na (33.7) 35.2 148.2 (45.2) 75.9 37.0 18.1 8,147 68,142 172,168 61,230 48,343 358,030 7,490 93,627 196,211 96,211 59,842 453,381 1,838 115,898 256,261 108,397 79,865 3,607 565,866 4,257 145,502 316,827 135,357 109,146 5,297 716,386 1,892 209,787 415,286 253,548 165,165 4,801 1,050,479 (8.1) 37.4 14.0 57.1 23.8 na 26.6 (75.5) 23.8 30.6 12.7 33.5 na 24.8 131.6 25.5 23.6 24.9 36.7 46.9 26.6 2006 2007 2005 2006 2007 2005 2006
Growth (% y-y) 2007 (55.6) 44.2 31.1 87.3 51.3 (9.4) 46.6 2005 1.7 20.7 43.3 21.2 13.2 0.0 100.0 2006 0.3 20.5 45.3 19.2 14.1 0.6 100.0 2007 0.6 20.3 44.2 18.9 15.2 0.7 100.0 2005 0.2 20.0 39.5 24.1 15.7 0.5 100.0
Nomura
89
14 January 2011
Banks | China
Lucy Feng
Nomura
90
14 January 2011
Banks | China
Lucy Feng
Amount (RMBmn) 2006 Minsheng Bank Overdue/on demand Less than 1 month 1 to 3 months 3 months to 1yr 1 to 5yr More than 5yrs undated Total deposits 245,570 81,107 56,813 122,234 75,015 2,576 583,315 295,813 85,370 66,452 124,108 92,080 7,396 671,219 404,990 44,301 84,457 165,613 85,660 765 785,786 551,715 189,072 108,183 195,335 82,647 986 1,127,938 2007 2008 2009
Growth (%y-y) 2007 20.5 5.3 17.0 1.5 22.7 187.1 na 15.1 2008 36.9 (48.1) 27.1 33.4 (7.0) (89.7) na 17.1 2009 36.2 326.8 28.1 17.9 (3.5) 28.9 na 43.5
As % of total loans 2006 42.1 13.9 9.7 21.0 12.9 0.4 0.0 100.0 2007 44.1 12.7 9.9 18.5 13.7 1.1 0.0 100.0 2008 51.5 5.6 10.7 21.1 10.9 0.1 0.0 100.0 2009 48.9 16.8 9.6 17.3 7.3 0.1 0.0 100.0
Nomura
91
14 January 2011
Banks | China
Lucy Feng
(RMBmn) ABC Loan commitments original maturity <1y Loan commitments original maturity >1y Credit card commitments Acceptances Letters of guarantee issued Letters of credit issued Others Total By category Corporate Retail (ie, credit cards) Total assets BOC Loan commitments original maturity <1y Loan commitments original maturity >1y Credit card commitments Acceptances Letters of guarantee issued Letters of credit issued Others Total By category Corporate Retail (ie, credit cards) Total assets CCB Loan commitments original maturity <1y Loan commitments original maturity >1y Credit card commitments Acceptances Letters of guarantee issued Letters of credit issued Others Total By category Corporate Retail (ie, credit cards) Total assets ICBC Loan commitments original maturity <1y Loan commitments original maturity >1y Credit card commitments Acceptances Letters of guarantee issued Letters of credit issued Others Total By category Corporate Retail (ie, credit cards) Total assets
Amount na na na na na na na na na na na
2006 na na na na na na na na na na
2007 na na na na na na na na na na
na 5,305,506
28,370 209,167 53,810 112,678 206,585 44,359 6,306 661,275 607,465 53,810 5,448,511
0.5 3.8 1.0 2.1 3.8 0.8 0.1 12.1 11.1 1.0
53,973 213,543 99,086 143,166 370,907 79,642 9,242 969,559 870,473 99,086 6,598,177
0.9 4.6 2.7 3.5 5.9 1.2 0.5 19.3 16.6 2.7
67.3 44.4 43.8 (18.8) 36.7 36.7 (69.1) 22.0 20.4 43.8
90.2 2.1 84.1 27.1 79.5 79.5 46.6 46.6 43.3 84.1
(11.2) 21.7 76.3 53.4 47.0 (10.2) 242.3 39.3 35.1 76.3
7.9 17.4 24.0 84.4 (16.7) (35.9) 111.7 9.0 7.2 24.0
21,799 202,798 89,477 134,684 171,205 74,531 694,494 605,017 89,477 7,508,751
0.3 2.7 1.2 1.8 2.3 1.0 0.0 9.2 8.1 1.2
13,281 212,195 106,136 155,073 191,748 111,254 789,687 683,551 106,136 8,683,712
0.2 2.4 1.2 1.8 2.2 1.3 0.0 9.1 7.9 1.2
144,585 94,102 160,830 206,632 217,071 113,253 936,473 775,643 160,830 9,757,146
1.8 2.1 1.7 1.8 1.8 1.4 0.0 10.5 8.8 1.7
Nomura
92
14 January 2011
Banks | China
Lucy Feng
2006 As % of total assets 0.0 0.8 1.2 18.7 7.0 0.0 0.0 27.7 26.5 1.2
2007 As % of total Amount assets 102 8,048 16,934 166,939 68,563 260,586 243,652 16,934 1,011,186 0.0 0.8 1.7 16.5 6.8 0.0 0.0 25.8 24.1 1.7
2008 As % of total assets 0.0 0.6 2.7 18.7 6.3 0.0 0.0 28.3 25.6 2.7
2009 As % of total Amount assets 15,979 25,250 40,597 305,363 62,901 52,585 502,675 462,078 40,597 0.9 1.4 2.3 17.2 3.5 3.0 0.0 28.3 26.0 2.3
Growth (% y-y)
(RMBmn) CITIC Bank Loan commitments original maturity <1y Loan commitments original maturity >1y Credit card commitments Acceptances Letters of guarantee issued Letters of credit issued Others Total By category Corporate Retail (ie, credit cards) Total assets BCOM Loan commitments original maturity <1y Loan commitments original maturity >1y Credit card commitments Acceptances Letters of guarantee issued Letters of credit issued Others Total By category Corporate Retail (ie, credit cards) Total assets CMB Loan commitments original maturity <1y Loan commitments original maturity >1y Credit card commitments Acceptances Letters of guarantee issued Letters of credit issued Others Total By category Corporate Retail (ie, credit cards) Total assets Minsheng Loan commitments original maturity <1y Loan commitments original maturity >1y Credit card commitments Acceptances Letters of guarantee issued Letters of credit issued Others Total By category Corporate Retail (ie, credit cards) Total assets
Amount 147 5,547 8,412 132,000 49,466 195,572 187,160 8,412 706,723
Amount 442 6,828 32,608 222,158 74,401 336,437 303,829 32,608 1,188,152
100.0 1,776,276
1,371 5,172 31,694 166,513 37,063 28,323 270,136 238,442 31,694 934,102
0.1 0.6 3.4 17.8 4.0 3.0 0.0 28.9 25.5 3.4
1,210 8,620 50,881 180,002 55,263 23,937 12 319,925 269,044 50,881 1,310,552
0.1 0.7 3.9 13.7 4.2 1.8 0.0 24.4 20.5 3.9
929 13,139 92,877 197,582 69,408 17,721 3 391,659 298,782 92,877 1,571,797
0.1 0.8 5.9 12.6 4.4 1.1 0.0 24.9 19.0 5.9
0.3 1.6 5.4 15.5 4.2 1.5 0.0 28.4 23.0 5.4
(23.2) 52.4 82.5 9.8 25.6 (26.0) (75.0) 22.4 11.1 82.5
361.4 27.0 6.3 44.7 (22.8) (31.1) (59.6) 21.3 24.5 6.3
100.0 2,067,941
361 2,985 9,635 70,853 22,881 12,490 119,204 109,569 9,635 725,087
0.0 0.4 1.3 9.8 3.2 1.7 0.0 16.4 15.1 1.3
524 4,332 26,574 96,624 32,770 15,879 176,703 150,129 26,574 919,796
0.1 0.5 2.9 10.5 3.6 1.7 0.0 19.2 16.3 2.9
120 5,880 28,140 145,005 49,029 8,250 475 236,899 208,759 28,140 1,054,350
0.0 0.6 2.7 13.8 4.7 0.8 0.0 22.5 19.8 2.7
1,766 3,656 28,466 216,657 45,593 15,094 1,841 313,073 284,607 28,466 1,426,392
0.1 0.3 2.0 15.2 3.2 1.1 0.1 21.9 20.0 2.0
Nomura
93
14 January 2011
Banks | China
Lucy Feng
Nomura
94
14 January 2011
Banks | China
Lucy Feng
NPL ratio (%) CCB Manufacturing Production and supply of electric power, gas and water Transportation storage and postal services Real Estate Leasing and commercial services Water, environment and public utility management Construction Wholesale and Retail trade Mining Education Telecommunications, computer services and software Others Total corporate Residential mortgage loans Personal consumer loans other loans Personal loans BOC (Mainland) Manufacturing Commerce and services Transportation and logistics Production and supply of electronic power, gas and water Real estate Water, environment and public utility management Mining Financial services Public Utilities Construction Others Energy, mineral and agriculture Total corporate Mortgage loans Credit card advances Others Personal loans CMB Manufacturing and processing Transportation, storage and postal services Production and supply of electric power, gas and water Wholesale and Retail, Property development Leasing and commercial services Construction Water, environment and public utility management Mining Info transmission, computer service and software Others Financial services Education Telecommunications, computer services and software Hospitality Total corporate Residential Mortgage loans Credit card advances Automobile loans Others retail loan Personal loans
FY05 6.00 3.00 2.00 6.90 na 1.70 5.10 12.50 1.50 1.00 2.50 8.50 4.82 1.30 3.70 4.00 1.90
FY06 5.64 1.37 1.51 6.05 4.90 1.52 3.89 11.11 1.20 1.59 3.73 7.55 4.07 1.37 3.34 2.50 1.77
FY07 4.19 1.58 1.61 4.84 3.13 1.18 2.54 8.75 0.91 1.83 3.23 6.18 3.28 0.80 2.95 1.34 1.09
FY08 3.59 1.47 1.26 4.67 2.53 1.63 2.04 7.51 0.53 1.49 2.76 3.83 2.77 0.82 2.25 1.55 1.08
FY09 2.67 0.82 0.65 2.60 0.60 0.77 1.94 5.04 0.38 1.20 4.45 1.78 1.71 0.42 1.69 1.45 0.66
6.76 9.96 4.69 na 13.24 na na 0.28 5.03 2.40 0.00 3.17 6.54 1.34 11.82 5.93 2.49
6.14 8.83 4.53 na 9.43 na na 0.35 4.27 6.70 6.35 2.56 5.76 1.21 7.63 5.16 2.17
5.22 6.74 3.99 na 4.87 na na 0.75 4.05 4.28 0.33 2.10 4.61 0.89 5.26 4.25 1.65
4.76 5.68 3.61 1.62 3.80 2.38 0.77 0.12 3.25 2.43 9.03 na 3.83 0.99 4.18 3.65 1.60
2.62 2.26 2.87 1.39 1.48 0.34 0.24 0.03 2.17 0.89 2.99 na 2.00 0.63 3.24 2.33 1.03
4.42 1.01 0.78 6.90 14.09 na 1.14 na na na 4.30 2.46 na na 8.77 3.92 0.50 1.71 3.93 0.46 2.58
2.96 0.50 1.56 8.06 8.89 4.22 0.84 na 0.00 na 4.66 na 0.15 4.64 na 3.18 0.40 1.53 6.03 0.24 2.12
2.43 0.84 0.86 3.13 3.78 2.43 0.52 0.12 0.00 na 3.88 1.94 na na na 2.15 0.26 1.92 na 0.29 0.46
1.66 0.56 0.99 3.26 2.53 1.59 0.19 0.11 0.00 3.70 2.61 na na na na 1.57 0.27 2.77 1.18 0.16 0.62
1.53 0.49 0.71 2.23 1.32 0.96 0.34 0.04 0.00 1.74 2.18 na na na na 1.18 0.14 2.79 na 0.19 0.44
Nomura
95
14 January 2011
Banks | China
Lucy Feng
NPL ratio (%) CITIC Manufacturing Wholesale and Retail Real estate development Leasing and commercial services Electricity, gas and water production and supply Financial sector Transportation, warehousing and postal services Construction Water, environment and public facility management Public and social organizations Others Total corporate Personal loans
Source: Banks Annual reports, Nomura research
FY05 6.18 9.89 9.91 6.48 0.41 3.86 2.21 0.81 0.12 1.35 8.69 5.28 1.04
FY06 4.40 7.12 4.62 2.82 0.04 7.72 0.43 0.21 0.07 0.97 4.01 3.02 0.85
FY07 2.79 3.64 1.88 1.03 0.05 15.28 0.10 0.13 0.06 0.16 2.63 1.72 0.64
FY08 2.64 2.59 1.71 1.18 0.49 11.04 0.19 0.39 0.05 na 2.08 1.56 0.82
FY09 1.88 1.48 2.41 0.69 0.41 2.11 0.10 0.47 0.06 na 1.97 1.09 0.75
Nomura
96
14 January 2011
Banks | China
Lucy Feng
601288 CH 601398 CH 601939 CH 601988 CH 601328 CH 600036 CH 601998 CH 600016 CH 600000 CH 601166 CH 000001 CH 600015 CH 601169 CH 601009 CH 002142 CH SHCOMP Index
(1) 1 3 1 4 3 2 0 7 10 4 5 5 7 6 3 1
(0) (0) (2) (1) 1 (1) (2) (2) 1 7 (2) 1 (1) 4 6 (1) (1)
2 8 5 1 (2) 2 6 (1) 2 15 1 6 1 6 10 5 7
na (16) (20) (20) (34) (17) (30) (22) (16) (26) (28) (4) (33) (20) (18) (20) (11)
4 0 4 5 5 5 0 5 9 3
1 (5) 4 5 4 8 0 4 6 1
16 14 27 58 23 53 42 27 52 23
(9) 10 16 63 12 51 73 30 33 8
Hua Nan E Sun Ta Chong Bank Cathay Shin Kong Sector mean
2881 TT 2886 TT 2892 TT 2891 TT 2801 TT 2890 TT 2887 TT Bloomberg ticker 2880 TT 2884 TT 2847 TT 2882 TT 2888 TT
(3) (3) (8) (2) (7) (4) (7) (3) (6) 0 (1) (3) (3) (3)
1 1 2 8 2 8 10 8 14 8 16 5 1 1
(0) 0 17 5 13 7 13 19 19 5 15 7 (0) 0
6 18 35 19 55 22 36 41 19 11 23 21 6 18
2 15 28 10 57 2 30 (7) 48 33 (9) 4 12 2 15
Nomura
97
14 January 2011
Banks | China
Lucy Feng
Bloomberg ticker China insurance (H-share) China Life-H Ping An-H PICC CTIH China Pacific-H H share sector mean China insurance (A-share) China Life-A Ping An-A China Pacific-A A share sector mean Korea KB Financial Group Shinhan Financial Group Woori Finance Holdings Korean Exchange Bank Hana Bank Industrial Bank of Korea Busan Bank Daegu Bank Sector mean Singapore DBS Group Holdings OCBC United Overseas Bank Sector mean Malaysia Public Bank Alliance Financial Group Aeon Credit Service AMMB Holdings Sector mean Indonesia Bank Central Asia Bank Rakyat Indo. Bank Mandiri Bank International Indonesia Bank Danamon Bank Pan Indonesia Bank Niaga Sector mean India Bank of Baroda Canara Bank HDFC HDFC Bank ICICI Bank Indian Overseas Bank Punjab National Bank State Bank of India Union Bank of India Sector mean Thailand Bank of Ayudhya Bangkok Bank Kasikornbank Siam Commercial Bank Sector mean Note: Closing prices as of 7 Jan, 2011 Source: Bloomberg, Nomura research 2628 HK 2318 HK 2328 HK 966 HK 2601 HK YTD 3 (3) (2) 3 4 1
Price performance 1M (2) (8) (4) (10) 9 (3) 3M (1) 11 2 (9) 11 4 6M (4) 30 42 (5) 7 11 12M (15) 20 43 (6) 5 2
1 0 4 1
7 12 2 4 12 10 10 15 8
14 10 1 (13) 23 6 7 12 9
27 17 8 (6) 41 34 41 30 22
3 19 2 (20) 31 31 10 6 11
4 4 7 5
6 5 7 6
3 14 3 7
8 17 0 9
(3) 15 (2) 3
4 5 3 1 1
6 3 4 13 11
8 (2) 4 19 15
13 8 (1) 41 35
21 31 (3) 38 36
10 7 12 121 1 11 69 21
29 28 35 100 15 39 134 42
(5) (8) (6) (3) (8) (8) (4) (8) (7) (6)
(6) (13) (2) (3) (6) (5) (2) (9) (5) (6)
(8) (3) (6) (7) (8) (9) (11) (19) (18) (11)
18 32 18 17 24 26 10 13 3 17
58 48 29 32 18 18 27 13 19 25
3 11 4 (1) 4
12 6 1 (7) 2
8 5 12 (1) 5
34 27 43 24 32
23 41 50 18 34
Nomura
98
14 January 2011
Banks | China
Lucy Feng
10.82 10.82 9.58 6.52 6.18 1.64 3.23 3.23 14.3 16.9 16.6
54,376 2.49 1.74 1.49 10.13 8,624 1.88 1.45 1.31 15.21 11,315 1.69 1.47 na 10.25 4,759 1.63 1.44 1.35 12.84 5,740 2.45 2.16 1.84 16.44 68,101 1.99 1.66 1.43 10.77
14.65 12.21 6.97 4.89 4.03 1.13 1.02 1.23 13.0 12.7 11.3
13.50 11.38
7.48 6.81 5.76 4.76 3.38 4.27 5.01 20.1 20.9 20.6
4.1 14.8 15.7 16.6 2.8 19.5 19.3 19.8 1.6 10.5 13.4 14.2 3.2 15.8 12.4 12.7 2.6 3.4 5.9 8.8 7.1 9.2 9.1 7.3 12.5 11.6
2.1 (1.6)
Bloomberg ticker India Axis Bank Bank of India HDFC HDFC Bank ICICI Bank Punjab National Bank Reliance Capital State Bank of India Union Bank of India Sector mean Indonesia Bank Central Asia Bank Negara Indonesia Bank Rakyat Indonesia Bank Danamon Indonesia Bank Mandiri Sector mean BBCA IJ BBNI IJ BBRI IJ BDMN IJ BMRI IJ AXSB IN BOI IN HDFC IN HDFCB IN ICICIBC IN PNB IN RCAPT IN SBIN IN UNBK IN
Rating NEUTRAL REDUCE NEUTRAL NEUTRAL BUY NEUTRAL REDUCE BUY NEUTRAL
Current price 1,675 450 660 2,660 1,355 960 834 3,765 260
Mkt cap (US$mn) 11,348 5,211 22,075 22,902 26,567 8,124 3,432 36,411 3,576 17,009
Div. Y (%) 09 0.8 1.6 1.0 0.4 1.2 na na 1.1 na na 10F 0.9 1.7 1.2 0.5 1.2 na na 1.2 na na 11F
0.9 19.1 19.2 18.3 2.9 29.2 14.2 20.8 1.6 18.2 20.0 21.8 0.8 16.0 16.4 17.1 1.5 7.8 8.0 5.9 9.6 7.3 na 25.8 23.1 22.9 na 12.9 1.2 17.1 14.8 16.5 na 27.2 23.9 23.9 na 16.3 15.2 16.6
1.41 1.53 1.50 0.70 2.45 2.59 1.35 1.48 0.96 1.08 na na 4.70 2.17 1.08 0.91 na na na na
27.9 29.8 24.7 20.0 26.4 15.5 15.0 12.9 22.8 13.1 12.0 12.0 9.3 26.5 14.1 7.3 20.1 na na 9.2 na na na na 9.0 na na na na 6.4 na na
17.0 14.6 13.4 12.0 13.7 10.7 14.7 7.3 8.4 6.2 5.8 6.6 7.1 9.5 9.3 5.9 5.9 6.3 8.9 8.5
2.7 26.6 26.8 26.0 2.2 14.4 18.4 16.0 2.8 29.5 29.5 29.8 3.4 11.6 14.9 16.2 2.5 21.8 22.3 21.1 2.6 23.2 24.2 23.5
2.58 2.69 1.16 1.65 2.60 2.64 1.49 2.36 1.90 2.01 2.14 2.34
Nomura
99
14 January 2011
Banks | China
Lucy Feng
Bloomberg ticker Malaysia AEON Credit Service M Bhd Alliance Financial Group Bhd AMMB Holdings Bursa Malaysia CIMB Group Holdings Public Bank Sector mean Singapore DBS Group Holdings OCBC Singapore Exchange United Overseas Bank Sector mean Korea Korea Exchange Bank Daegu Bank Busan Bank Industrial Bank of Korea Woori Finance Hldgs Shinhan Financial Group Hana Financial Group KB Financial Group Sector mean Taiwan Fubon FHC Cathay Financial Hldg E.Sun FHC Yuanta Financial Hldgs Mega FHC Taishin Financial Hldgs Chinatrust FHC First FHC Sector mean Thailand Bank of Ayudhya Bangkok Bank Kasikornbank Siam Commercial Bank Sector mean BAY TB BBL TB KBANK TB SCB TB 2881 TT 2882 TT 2884 TT 2885 TT 2886 TT 2887 TT 2891 TT 2892 TT 004940 KS 005270 KS 005280 KS 024110 KS 053000 KS 055550 KS 086790 KS 105560 KS DBS SP OCBC SP SGX SP UOB SP ACSM MK AFG MK AMM MK BURSA MK CIMB MK PBKF MK
P/B (X) 09 2.1 1.8 2.5 5.2 3.1 4.3 10F 1.8 1.7 2.2 4.5 2.6 3.8 11F 1.6 1.5 2.0 4.4 2.3 3.4 09 9.4 21.5 26.9 45.8 22.5 18.5
P/E (X) 10F 8.5 16.3 21.1 23.2 17.9 15.9 11F 7.2 12.3
P/PPOP (X) 09 4.9 9.9 10F 4.1 9.7 11F 3.6 8.1 9.2 na 9.6 9.3
Div. Y (%) 09 3.9 2.0 0.9 2.2 1.5 3.0 10F 4.4 2.0 1.3 4.1 1.0 3.4 11F
ROA (%) 09 10F 11F 5.90 1.19 1.35 1.62 1.29 4.29
5.94 5.65 0.77 0.95 1.00 1.08 1.26 1.46 1.22 1.28 3.74 4.00
15.7 12.5 10.2 21.5 na na 14.4 12.7 11.4 14.4 11.5 10.2
2.5 11.6 11.6 13.3 4.4 22.6 22.2 22.0 1.4 15.0 16.3 17.0 3.8 24.5 25.3 24.9
17.15 14.25 10.3 9.12 7.96 2.25 2.70 3.50 17.8 18.2 18.9
4.8
9.0
5.4 11.1
3.3 11.3 11.9 12.4 3.6 36.9 40.6 42.9 4.6 11.0 12.2 12.4 4.0 13.3 12.4 15.4
1.3 12.2 12.8 10.4 2.3 10.1 12.7 16.6 2.6 13.0 14.9 12.4 3.5 0.7 1.7 1.8 1.4 1.7 9.0 15.2 14.6 7.9 7.6 13.5 7.0 12.3 13.3 3.3 10.0 10.7 3.2 6.7 1.2 13.4 9.2 13.1
0.89 1.07 0.63 0.82 0.84 1.13 0.49 0.91 0.36 0.37 0.50 0.99 0.20 0.65 0.20 0.09 0.42 0.64
12.9 32.2
na na
na na 9.6
5.1 11.3 10.3 11.2 1.5 4.9 4.1 5.4 5.7 2.4 3.9 6.3 3.8 6.5 7.7 3.9 8.0 7.1 7.4 7.1 9.7 7.9 8.0
0.79 0.68 0.28 0.19 0.22 0.44 1.37 1.50 0.59 0.59 0.35 0.35 0.08 0.77 0.15 0.23 0.5 0.6
19.0 27.3 19.0 14.8 7.8 11.0 9.9 7.0 14.0 15.4 10.9 11.9 12.0 19.6 7.9 20.5 13.6 13.4
4.4 13.9 12.4 11.2 1.2 11.2 13.4 2.8 6.8 4.4 7.4 7.3 9.1
1.3 137.6
13.3 11.1
8.8 8.4
4.9
7.7
9.7 12.4
0.87 1.12 1.21 1.32 1.12 1.23 1.64 1.82 1.27 1.42
3.4 11.2 11.5 12.6 2.3 12.1 13.2 15.1 3.9 15.5 16.3 17.3 3.5 12.3 13.2 14.7
Nomura
100
14 January 2011
Maintained
NOMURA INTERNATIONAL (HK) LIMITED
lucy.feng@nomura.com donger.wang@nomura.com
BUY
Closing price on 7 Jan Price target Upside/downside Difference from consensus FY11F net profit (RMBmn) Difference from consensus
Source: Nomura
Action
We have lifted our FY11F NIM assumption from 2.73% to 2.76% based on our expectation of further rounds of symmetrical rate hikes in 2011F, given ABCs larger proportion of demand deposits. Having a low LDR of 55, ABC also looks to be in the sweet spot of county banking and should benefit most from Chinas urbanisation, in our view. At 1.6x FY11F P/BV, the stock remains a BUY; PT revised to HK$4.80, for potential upside of 20%.
HK$3.99
HK$4.80
(from HK$4.70)
Catalysts
We see further rounds of rate hikes as a catalyst for sector NIM expansion. Anchor themes We think the operating environment remains favourable for Chinese banks in 2011F, but negative sentiment from uncertainties over policies and asset quality continues to weigh on valuations. Better visibility on regulatory policies (capital and provisioning) could trigger a re-rating in the near term.
Nomura vs consensus
Our net profit forecast is above consensus due to our higher NIM and lower credit cost assumptions.
Absolute (HK$) Absolute (US$) Relative to Index Market cap (US$mn) Estimated free float (%) 52-week range (HK$) 3-mth avg daily turnover (US$mn) Stock borrowability Major shareholders (%) MOF Huijin
Source: Company, Nomura estimates
Nomura
101
14 January 2011
Lucy Feng
Valuation methodology
Our revised PT of HK$4.80 is based on 2.0x P/BV applied to FY11F BVPS (rolled over from the average of FY10F and FY11F BVPS). Our sustainable ROE assumption is 15.9%. We use a Gordon Growth model (target P/BV= (sustainable ROE long-term growth) / (cost of equity long-term growth)) to derive our fair P/BV range, assuming a cost of equity of 12% and terminal growth rate of 8.0%. We derive our terminal growth rate assumption by applying a 50% payout ratio to our long-term sustainable ROE assumption.
Revised PT of HK$4.80 is based on 2.0x P/BV applied to the FY11F BVPS (rolled over from the average of FY10F and FY11F BVPS)
Nomura
102
14 January 2011
Lucy Feng
Investment risks
Being one of the largest banks in China, ABC remains closely tied to the Chinese economy. Severer-than-expected macro tightening could result in a sharp rise in bad debt costs. The government may implement certain policies specifically for ABC in county areas which might or might not be to the benefit of ABC. A slowing economy would likely have negative implications for loan growth and asset quality. The concept of market and operations-related risks has only been introduced into Chinas banking system in recent years, and the system itself has yet to go through a full credit cycle. Therefore, there is no historical data showing how Chinese banks might perform under a more testing credit environment.
Severer-than-expected macro tightening could result in sharp rise in bad debt costs
Nomura
103
14 January 2011
Lucy Feng
Financial statements
Profit and Loss (R MBmn) Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Norm alised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (% ) ROA (% ) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FD EPS
Source: Nomura estimates
FY08 321,855 (121,852) 200,003 23,798 (571) (9,214) 14,013 214,016 (11,423) (98,752) 103,841 (39,858) (11,620) 52,363 (14) 52,349 (896) 51,453 21 51,474 51,474 51,474
FY09 296,147 (114,508) 181,639 35,640 271 6,087 41,998 223,637 (10,775) (98,792) 114,070 (44,289) 4,147 73,928 73,928 (8,926) 65,002 (10) 64,992 64,992 (20,000) 44,992
FY10F 382,186 (143,989) 238,196 43,505 48 3,001 46,553 284,750 (11,314) (114,962) 158,474 (35,343) 123,131 123,131 (29,552) 93,580 (11) 93,569 93,569 (21,053) 72,516
FY11F 467,597 (178,615) 288,982 53,467 421 3,168 57,056 346,038 (11,879) (132,879) 201,279 (37,424) 163,856 163,856 (38,506) 125,350 (12) 125,337 125,337 (56,407) 68,930
FY12F 571,878 (230,015) 341,863 65,975 611 4,690 71,276 413,139 (12,473) (152,497) 248,169 (45,449) 202,719 202,719 (47,639) 155,080 (13) 155,067 155,067 (69,786) 85,281
13.4 16.1 13.4 3.1 3.1 3.13 5.03 2.01 3.02 6.5 51.5 1.7 (23.5) 0.84 (24.0) 0.85
14.0 16.8 14.0 2.2 2.6 2.6 2.28 3.71 1.51 2.20 18.8 49.0 12.1 30.8 20.5 0.82 23.3 0.93
10.7 12.9 10.7 1.9 2.1 2.1 2.59 4.16 1.63 2.53 16.3 44.3 24.0 22.5 21.4 0.97 28.1 1.28
8.5 10.2 8.5 5.3 1.6 1.6 2.76 4.47 1.76 2.71 16.5 41.8 23.5 45.0 21.4 1.12 28.0 1.46
6.5 7.8 6.5 6.9 1.3 1.3 2.87 4.79 1.97 2.82 17.3 39.9 23.5 45.0 22.6 1.19 29.5 1.56
NIM expansion
Nomura
104
14 January 2011
Lucy Feng
Balance Sheet (RMBmn) As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RMB) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (RMB) Norm EPS (RMB) Fully diluted norm EPS (RMB) DPS (RMB) PPOP PS (RMB) BVPS (RMB) ABVPS (RMB) NTAPS (RMB)
Source: Nomura estimates
FY08 1,145,884 107,147 2,269,060 246,370 3,100,159 (85,175) 3,014,984 155 103,883 17,107 109,761 7,014,351 6,097,428 346,894 51,774 6,496,096 227,714 6,723,810 96 260,000 12,022 18,423 290,445 7,014,351 134,067
FY09
FY10F
FY11F
FY12F
1,517,806 2,054,160 2,369,134 2,520,185 111,128 124,463 139,399 156,127 2,504,496 2,787,232 3,102,115 3,452,826 421,093 463,202 509,523 560,475 4,138,187 4,924,071 5,923,341 7,250,333 (126,692) (157,366) (189,753) (231,133) 4,011,495 4,766,705 5,733,587 7,019,200 141 141 141 141 111,973 114,212 116,497 118,827 19,659 17,693 15,924 14,331 184,797 68,622 69,309 70,002 8,882,588 10,396,432 12,055,628 13,912,113 7,497,618 8,708,128 10,135,681 11,801,584 714,218 763,475 825,933 901,717 163,681 223,762 284,852 297,050 8,375,517 9,695,366 11,246,465 13,000,351 164,146 167,842 171,653 175,586 8,539,663 9,863,208 11,418,119 13,175,937 106 107 108 109 260,000 324,794 324,794 324,794 39,817 20,000 23,002 342,819 (8,660) 21,053 195,929 533,117 37,258 56,407 218,942 637,401 94,463 69,786 247,023 736,067
50.8 4.1
55.2 3.9
56.5 5.1
58.4 5.3
61.4 5.3
Nomura
105
14 January 2011
CONVICTION CALL
CONVICTION CALL
CONVICTION CALL
CONVICTION CALL
ICBC 1 3 9 8 H K
F I N AN C I AL S / B AN K S | C H I N A
Maintained
NOMURA INTERNATIONAL (HK) LIMITED
lucy.feng@nomura.com donger.wang@nomura.com
BUY
Closing price on 7 Jan Price target Upside/downside Difference from consensus FY11F net profit (RMBmn) Difference from consensus
Source: Nomura
Action
We believe ICBC is well positioned to benefit from further rate hikes given its larger deposit base and, hence, lower costs. With a phase-in period, we think potential policy changes would not have any significant earnings impact in 2011F. At 1.78x P/BV and 8.9x P/E for FY11F, ICBCs valuations remain undemanding. We maintain our BUY rating and roll over our price target to HK$7.60 in 2011F.
HK$5.87
HK$7.60
(from HK$7.30)
Catalysts
We see further rounds of rate hikes as a catalyst to boost its NIM in 2011F. Anchor themes The operating environment remains favourable for Chinese banks in 2011F, but negative sentiment from uncertainties over policies and asset quality continues to weigh on valuations. Better visibility on regulatory policies (capital and provisioning) could trigger a re-rating in the near term.
Nomura vs consensus
Our net profit forecast is above consensus estimates due to our higher NIM and lower credit cost assumptions.
1 05 1 00 95 90 85 80
Feb10
Mar10
Au g10
Se p10
O ct10
Jan10
Ju n10
Apr10
Jul10
Absolute (HK$) Absolute (US$) Rel ative to Ind ex Market cap (US$mn) Estimated free fl oat (%) 52-we ek range (HK$) 3-mth avg da ily turno ver (US$mn) Sto ck borrowability Major sharehold ers (%) Hui jin MOF
Source: Company, Nomura estimates
6m 7.0 7.3 (7 .8) 252,224 6 2.0 6.76/5 .31 25 9.2 Easy 3 5.4 3 5.3
Nomura
106
14 January 2011
ICBC
Lucy Feng
Previous 2012F 427,053 111,232 538,286 (206,490) 331,795 (31,676) 300,120 (70,528) (1,000) 228,592 2010F 291,229 78,576 369,805 (140,916) 228,889 (16,395) 212,494 (49,936) (826) 161,732 2011F 349,649 93,108 442,757 (169,732) 273,025 (26,624) 246,401 (57,904) (909) 187,588 2012F 418,231 111,232 529,464 (205,832) 323,632 (31,621) 292,011 (68,622) (1,000) 222,389
Change (%) 2010F 3.3 0.0 2.6 0.4 4.0 0.7 4.3 4.3 0.0 4.3 2011F 3.4 0.0 2.7 0.4 4.1 0.8 4.5 4.5 0.0 4.5 2012F 2.1 0.0 1.7 0.3 2.5 0.2 2.8 2.8 0.0 2.8
2011F 361,612 93,108 454,720 (170,422) 284,298 (26,828) 257,470 (60,505) (909) 196,056
300,963 78,576 379,540 (141,461) 238,079 (16,508) 221,571 (52,069) (826) 168,676
Valuation methodology
Our revised price target of HK$7.60 is based on fine-tuned 2.21x P/BV multiplier and rolled over FY11F BVPS. Our sustainable ROE assumption is 15.8%, revised down from 16.6%. We use the Gordon Growth Model [target P/BV = (sustainable ROE long-term growth)/(cost of equity long-term growth)] to derive our fair P/BV range, assuming a cost of equity of 11.5% and a terminal growth rate of 7.9% (previously 8.3%). We derive our terminal growth figure by applying a 50% payout ratio to our long-term sustainable ROE.
Nomura
107
14 January 2011
ICBC
Lucy Feng
Financial statements
Profit and Loss (RMBmn) Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS
Source: Nomura estimates
FY08 440,574 (177,537) 263,037 44,002 (34) 3,190 47,158 310,195 (111,335) 198,860 (36,512) (18,950) 143,398 1,978 145,376 (34,150) 111,226 (385) 110,841 110,841 (55,113) 55,728
FY09 405,878 (160,057) 245,821 55,147 7,135 1,308 63,590 309,411 (120,819) 188,592 (21,682) (1,603) 165,307 1,987 167,294 (37,898) 129,396 (751) 128,645 128,645 (56,783) 71,862
FY10F 556,299 (255,335) 300,963 73,756 3,486 1,334 78,576 379,540 (141,461) 238,079 (18,693) 219,385 2,186 221,571 (52,069) 169,502 (826) 168,676 168,676 (76,276) 92,400
FY11F 762,826 (401,213) 361,612 88,646 3,101 1,361 93,108 454,720 (170,422) 284,298 (29,233) 255,065 2,404 257,470 (60,505) 196,964 (909) 196,056 196,056 (88,634) 107,422
FY12F 1,020,231 (593,178) 427,053 106,929 2,915 1,388 111,232 538,286 (206,490) 331,795 (34,320) 297,475 2,645 300,120 (70,528) 229,592 (1,000) 228,592 228,592 (103,316) 125,276
NIM rebound
16.0 20.8 16.0 3.1 2.9 2.9 2.95 4.94 2.14 2.80 15.2 35.9 23.5 49.7 19.4 1.20 25.1 1.56 13.3 17.3 13.3 3.3 2.5 2.5 2.26 3.74 1.58 2.16 20.6 39.0 22.7 44.1 20.2 1.19 25.9 1.53 10.2 13.2 10.2 4.3 2.1 2.1 2.41 4.45 2.13 2.32 20.7 37.3 23.5 45.2 22.3 1.31 29.1 1.70 8.6 11.1 8.6 5.3 1.7 1.7 2.54 5.36 2.91 2.45 20.5 37.5 23.5 45.2 21.9 1.29 28.5 1.68 7.0 9.0 7.0 6.5 1.4 1.4 2.63 6.29 3.74 2.55 20.7 38.4 23.5 45.2 22.3 1.27 29.0 1.66
Nomura
108
14 January 2011
ICBC
Lucy Feng
Balance Sheet (RMBmn) As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RMB) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (RMB) Norm EPS (RMB) Fully diluted norm EPS (RMB) DPS (RMB) PPOP PS (RMB) BVPS (RMB) ABVPS (RMB) NTAPS (RMB)
Source: Nomura estimates
FY08 FY09 FY10F FY11F FY12F 168,363 235,301 263,537 295,162 330,581 1,693,024 1,693,048 2,414,792 3,239,201 4,228,566 3,014,669 3,579,026 3,985,862 4,439,253 4,944,559 163,493 408,826 449,709 494,679 544,147 4,571,994 5,728,626 6,733,687 7,882,609 9,277,503 (135,983) (145,452) (155,585) (179,783) (208,121) 4,436,011 5,583,174 6,578,102 7,702,825 9,069,382 28,421 36,278 36,278 36,278 36,278 86,800 95,684 97,598 99,550 101,541 10,746 18,696 16,826 15,144 13,629 155,619 135,020 136,370 137,734 139,111 9,757,146 11,785,053 13,979,073 16,459,825 19,407,795 8,223,446 9,771,277 11,626,560 13,841,712 16,486,887 646,980 1,003,106 1,123,008 1,257,392 1,407,977 39,648 111,060 161,666 165,633 169,996 8,910,074 10,885,443 12,911,234 15,264,736 18,064,860 240,442 220,676 226,882 233,392 240,229 9,150,516 11,106,119 13,138,116 15,498,128 18,305,089 3,955 5,041 5,091 5,142 5,194 334,019 334,019 349,019 349,019 349,019 17,816 55,113 195,727 602,675 61,977 56,783 221,114 673,893 154,871 76,276 255,700 835,866 263,202 88,634 255,700 956,555 389,477 103,316 255,700 1,097,512
9,757,146 11,785,053 13,979,073 16,459,825 19,407,795 85,612 94,313 103,610 104,482 88,467
55.6 6.2
58.6 5.7
57.9 6.0
56.9 5.8
56.3 5.7
Nomura
109
14 January 2011
Maintained
NOMURA INTERNATIONAL (HK) LIMITED
lucy.feng@nomura.com donger.wang@nomura.com
BUY
Closing price on 7 Jan Price target Upside/downside Difference from consensus FY11F net profit (RMBmn) Difference from consensus
Source: Nomura
Action
We believe further rate hikes and tightening credit policy should help improve pricing power and boost NIM, whereas potential policy changes would not have any significant earnings impact on CCB in 2011F. At 1.69x P/B and 8.54x P/E for FY11F, CCBs valuation is still undemanding. We reaffirm BUY rating and roll over our price target to HK$8.60 for 2011F.
HK$7.06
HK$8.60
(from HK$8.50)
Catalysts
We see further rounds of rate hikes as a catalyst to boost its NIM in 2011F. Anchor themes The operating environment remains favourable for Chinese banks in 2011F, but negative sentiment from uncertainties over policies and asset quality continues to weigh on valuations. Better visibility on regulatory policies (capital and provisioning) could trigger a re-rating in the near term.
Nomura vs consensus
Our net profit forecast is higher than consensus, due to likely higher NIM and lower credit cost assumptions.
1 20 1 15 1 10 1 05 1 00 95 90
Absolute (HK$) Absolute (US$) Rel ative to Ind ex Market cap (US$mn) Estimated free fl oat (%) 52-we ek range (HK$) 3-mth avg da ily turno ver (US$mn) Sto ck borrowability Major sharehold ers (%) Hui jin Bank o f America
Source: Company, Nomura estimates
1m (0 .1) 0 .1
6m 1 7.4 1 7.6 2.5 212,237 3 1.8 8.05/5 .60 23 3.9 Easy 5 7.1 1 1.0
Nomura
110
14 January 2011
Lucy Feng
Previous 2012F 362,411 111,499 473,910 293,217 (36,007) 257,210 (59,158) (106) 197,945 2010F 253,646 72,760 326,405 201,136 (22,507) 178,629 (41,085) (88) 137,456 2011F 308,607 87,982 396,588 246,378 (30,800) 215,578 (49,583) (97) 165,898 2012F 373,133 111,499 484,632 303,940 (36,335) 267,605 (61,549) (106) 205,949 2010F 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Change (%) 2011F (1.5) 0.0 (1.2) 0.0 (1.9) 0.0 (2.2) (2.2) 0.0 (2.2) 2012F (2.9) 0.0 (2.2) 0.0 (3.5) (0.9) (3.9) (3.9) 0.0 (3.9)
2011F 303,862 87,982 391,844 241,633 (30,799) 210,834 (48,492) (97) 162,245
Valuation methodology
Our revised price target of HK$8.60 is based on fine-tuned 2.11x P/BV multiplier and rolled over FY11F BVPS. Our sustainable ROE assumption is 16.29%, revised from 16.94%. We use the Gordon Growth Model [target P/BV = (sustainable ROE longterm growth)/(cost of equity long-term growth)] to derive our fair P/BV range, assuming a cost of equity of 12% and a terminal growth rate of 8.1% (previously 8.5%). We derive our terminal growth figure by applying a 50% payout ratio to our long-term sustainable ROE.
Nomura
111
14 January 2011
Lucy Feng
Financial statements
Profit and Loss (RMBmn) Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS
Source: Nomura estimates
FY08 356,500 (131,580) 224,920 38,446 961 5,420 44,827 269,747 (99,193) 170,554 (36,246) (14,583) 119,725 16 119,741 (27,099) 92,642 (43) 92,599 92,599 (45,383) 47,216
FY09 339,463 (127,578) 211,885 48,059 6,704 2,666 57,429 269,314 (105,146) 164,168 (24,256) (1,204) 138,708 17 138,725 (31,889) 106,836 (80) 106,756 106,756 (47,205) 59,551
FY10F 427,040 (173,394) 253,646 64,591 5,363 2,805 72,760 326,405 (125,270) 201,136 (22,526) 178,610 19 178,629 (41,085) 137,544 (88) 137,456 137,456 (61,855) 75,601
FY11F 534,107 (230,245) 303,862 80,739 4,291 2,952 87,982 391,844 (150,211) 241,633 (30,820) 210,813 21 210,834 (48,492) 162,342 (97) 162,245 162,245 (73,010) 89,235
FY12F 666,688 (304,277) 362,411 104,961 3,432 3,106 111,499 473,910 (180,693) 293,217 (36,030) 257,188 23 257,210 (59,158) 198,052 (106) 197,945 197,945 (89,075) 108,870
NIM rebound
16.1 19.7 16.1 3.0 3.1 3.1 3.24 5.13 2.04 3.10 16.6 36.8 22.6 49.0 20.9 1.31 27.0 1.69
13.5 16.5 13.5 3.3 2.6 2.6 2.41 3.85 1.55 2.30 21.3 39.0 23.0 44.2 20.8 1.24 27.1 1.61
10.7 13.0 10.7 4.1 2.1 2.1 2.48 4.18 1.85 2.33 22.3 38.4 23.0 45.0 21.5 1.31 28.0 1.71
8.9 10.9 8.9 5.0 1.7 1.7 2.61 4.59 2.18 2.41 22.5 38.3 23.0 45.0 21.1 1.33 27.4 1.72
6.9 8.4 6.9 6.5 1.4 1.4 2.72 5.01 2.56 2.44 23.5 38.1 23.0 45.0 22.4 1.39 29.1 1.81
Nomura
112
14 January 2011
Lucy Feng
Balance Sheet (RMBmn) As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RMB) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (RMB) Norm EPS (RMB) Fully diluted norm EPS (RMB) DPS (RMB) PPOP PS (RMB) BVPS (RMB) ABVPS (RMB) NTAPS (RMB)
Source: Nomura estimates
FY08 34,313 49,932 1,213,137 2,194,748 3,793,943 (110,368) 3,683,575 1,728 63,957 1,527 7,855 304,680 7,555,452 6,375,915 490,578 53,810 6,920,303 167,587 7,087,890 1,596 233,689 14,210 45,383 172,684 465,966 7,555,452 83,822
FY09 FY10F FY11F FY12F 29,173 37,722 45,196 53,529 123,380 148,056 177,667 213,201 1,429,475 1,848,360 2,214,624 2,622,899 2,578,799 2,965,619 3,410,462 3,922,031 4,819,773 5,632,209 6,605,404 7,806,526 (126,826) (135,220) (152,374) (184,069) 4,692,947 5,496,989 6,453,030 7,622,457 1,791 1,970 2,167 2,384 74,693 78,428 82,349 86,466 1,590 1,431 1,288 1,159 10,790 9,711 8,740 7,866 680,717 714,753 750,490 788,015 9,623,355 11,303,039 13,146,014 15,320,007 8,001,323 9,441,561 11,141,042 13,146,430 812,911 837,299 862,418 888,291 98,644 138,644 138,644 138,644 8,912,878 10,417,504 12,142,104 14,173,365 151,457 166,603 183,263 201,589 9,064,335 10,584,107 12,325,367 14,374,954 34 35 36 36 233,689 250,011 250,011 250,011 88,907 157,531 231,249 320,830 47,205 61,855 73,010 89,075 189,185 249,500 266,340 285,100 558,986 718,897 820,611 945,017 9,623,355 11,303,039 13,146,014 15,320,007 72,156 73,375 92,763 118,516
59.5 6.2
60.2 5.8
59.7 6.4
59.3 6.2
59.4 6.2
Nomura
113
14 January 2011
114
Maintained
NOMURA INTERNATIONAL (HK) LIMITED
lucy.feng@nomura.com donger.wang@nomura.com
BUY
Closing price on 7 Jan Price target Upside/downside Difference from consensus FY11F net profit (RMBmn) Difference from consensus
Source: Nomura
Action
BOCs valuation remains undemanding at 1.3x FY11F P/BV. We reiterate our view that increased use of the RMB in overseas markets will benefit BOC the most, given its clearing centre and distinctive role in RMB-trade settlement in Hong Kong. We see the recent expansion of the RMB settlement pilot programme as a further catalyst for BOC. We reaffirm our BUY rating with a revised PT of HK$5.20.
HK$4.14
HK$5.20
(from HK$5.30)
Catalysts
We see further rounds of rate hikes as a catalyst in expanding the sector NIM. Anchor themes The operating environment remains favourable for Chinese banks in 2011F, but negative sentiment from uncertainties over policies and asset quality continues to weigh on valuations. Better visibility on regulatory policies (capital and provisioning) could trigger a re-rating in the near term.
Nomura vs consensus
Our estimates are higher than consensus estimates, mainly owing to our higher NIM and lower credit cost assumptions.
Absolute (HK$) Absolute (US$) Relative to Index Market cap (US$mn) Estimated free float (%) 52-week range (HK$) 3-mth avg daily turnover (US$mn) Stock borrowability Major shareholders (%) Huijin HKSCC Nominees
Source: Company, Nomura estimates
6m 5.1 5.3 (9.8) 135,188 67.3 5.00/3.59 181.5 Easy 67.5 21.8
Nomura
114
14 January 2011
Lucy Feng
Previous 2012F 273,945 98,056 127,639 401,585 233,605 (46,120) 1,093 188,577 (43,214) (4,530) 140,834 2010F 189,092 60,687 84,888 273,980 155,037 (24,703) 903 131,238 (29,684) (4,530) 97,024 2011F 228,259 78,088 103,868 332,128 190,991 (39,920) 993 152,064 (34,451) (4,530) 113,084 2012F 275,149 98,056 127,639 402,788 234,745 (46,386) 1,093 189,452 (43,424) (4,530) 141,498 2010F 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
% change 2011F (0.2) 0.0 0.0 (0.1) 0.0 (0.2) (0.3) 0.0) (0.2) (0.2) 0.0 (0.2) 2012F (0.4) 0.0 0.0 (0.3) 0.0 (0.5) (0.6) 0.0 (0.5) (0.5) 0.0 (0.5)
2010F 189,092 60,687 84,888 273,980 155,037 (24,703) 903 131,238 (29,684) (4,530) 97,024
2011F 227,764 78,088 103,868 331,633 190,521 (39,798) 993 151,716 (34,367) (4,530) 112,819
2Q10
3Q10
Valuation methodology
We derive our revised price target of HK$5.20 (previous: HK$5.30) by applying a P/BV of 1.7x (from 2.0x) to our FY11F BVPS forecast. Our sustainable ROE assumption is revised from 16.0% to 15.1%. We use the Gordon Growth Model [target P/BV= (sustainable ROE long-term growth)/(cost of equity long-term growth)] to derive our fair P/BV range, assuming a cost of equity of 12.0% and a terminal growth rate of 7.6%(previous: 8.0%). We derive our terminal growth rate by applying a 50% payout ratio to our long-term sustainable ROE.
Investment risks
Downside risks: We believe that more-severe-than-expected macro tightening could result in a sharp rise in bad debt costs. Any downturn in the global economy, and especially Hong Kongs economy, could also weigh on the banks earnings performance given its bigger foreign exposure relative to that of peers.
Nomura
115
14 January 2011
Lucy Feng
Financial statements
Profit and Loss (RMBmn) Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS
Source: Nomura estimates
14.8 18.6 14.8 3.5 2.0 2.0 2.63 4.63 2.18 2.45 28.8 42.6 24.4 51.3 14.5 0.99 19.5 1.34
11.3 14.3 11.3 3.9 1.8 1.8 2.04 3.36 1.41 1.94 31.7 46.0 23.2 43.8 16.6 1.03 22.7 1.41
10.2 12.9 10.2 4.4 1.6 1.6 2.12 3.70 1.69 2.01 31.0 43.4 22.6 45.0 17.1 1.02 23.0 1.37
8.3 10.4 8.3 5.4 1.3 1.3 2.23 4.05 1.92 2.12 31.3 42.6 22.7 45.0 17.5 1.03 23.4 1.37
6.4 8.0 6.4 7.1 1.1 1.1 2.36 4.36 2.10 2.26 31.8 41.8 22.9 45.0 19.4 1.08 25.8 1.44
NIM recovery
Nomura
116
14 January 2011
Lucy Feng
Balance Sheet (RMBmn) As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RMB) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (RMB) Norm EPS (RMB) Fully diluted norm EPS (RMB) DPS (RMB) PPOP PS (RMB) BVPS (RMB) ABVPS (RMB) NTAPS (RMB)
Source: Nomura estimates
FY08 72,533 488,465 1,207,613 1,646,208 32,039 3,296,146 (106,494) 3,189,652 7,376 92,236
FY09 434,351 223,444 1,111,351 1,816,679 36,099 4,910,358 (112,950) 4,797,408 10,668 113,508
FY10F 907,529 223,444 1,278,054 1,909,370 36,099 5,756,254 (128,666) 5,627,588 11,948 119,183
FY11F 1,296,993 223,444 1,431,420 2,006,844 36,099 6,784,983 (152,754) 6,632,229 13,382 125,143
FY12F 1,753,843 223,444 1,603,190 2,109,352 36,099 8,049,551 (184,106) 7,865,445 14,988 131,400
215,558 6,951,680 5,102,111 835,811 163,827 6,101,749 360,044 6,461,793 25,629 253,839 50,428 32,999 126,992 464,258 6,951,680 90,879
204,669 225,703 248,978 274,742 8,748,177 10,338,917 12,014,532 14,012,502 6,620,552 7,860,652 9,237,022 10,888,665 1,126,963 1,294,923 1,487,946 1,709,778 175,599 227,922 252,710 280,455 7,923,114 9,383,497 10,977,678 12,878,898 283,435 299,027 315,582 333,171 8,206,549 9,682,524 11,293,260 13,212,069 30,402 32,105 33,809 35,512 253,839 279,147 279,147 279,147 69,547 35,537 152,303 511,226 114,786 43,661 186,694 624,288 169,933 51,689 186,694 687,463 235,706 63,375 186,694 764,922
64.6 6.7
74.2 5.8
73.2 6.0
73.5 5.7
73.9 5.5
Higher CAR should mean no more capital raising over the next three years
Nomura
117
14 January 2011
Bank of Communications 3 3 2 8 H K
F I N AN C I AL S / B AN K S | C H I N A
From Buy
NOMURA INTERNATIONAL (HK) LIMITED
lucy.feng@nomura.com donger.wang@nomura.com
NEUTRAL
Action
We downgrade BCOM to NEUTRAL with a revised price target of HK$9.00. This based on our view that the market will likely be disappointed with BCOMs loan growth in 2011 on the back of the new RRR system. However, at 1.5x FY11F P/B, BCOMs valuation is the most undemanding among the Big 5 China banks under our coverage.
Closing price on 7 Jan Price target Upside/downside Difference from consensus FY11F net profit (RMBmn) Difference from consensus
Source: Nomura
HK$8.03
HK$9.00
(from HK$11.00)
Catalysts
We see further rounds of rate hikes as a catalyst for sector NIM expansion. Anchor themes The operating environment remains favourable for Chinese banks in 2011F, but negative sentiment from uncertainties over policies and asset quality continues to weigh on valuations. Better visibility on regulatory policies (capital and provisioning) could trigger a re-rating in the near term.
Nomura vs consensus
Our net profit forecast is above consensus estimates due to our higher NIM and lower credit cost assumptions.
Absolute (HK$) Absolute (US$) Relative to Index Market c ap (US$mn) Estimated free float (%) 52-week range (HK$) 3-mth avg daily turnover (US$mn) Stock borrowability Major shareholders (%) MOF HSB C
Source: Company, Nomura estimates
6m (1.8) (1.6) (16.7) 50,610 62.9 9.74/7.41 44.21 Easy 26.5 18.6
Nomura
118
14 January 2011
Bank of Communications
Lucy Feng
Old 2012F 121,063 25,613 28,778 149,841 (56,216) 93,625 (18,171) 75,454 (16,977) (181) 58,296 2010F 82,027 15,892 19,263 101,291 (38,148) 63,143 (12,219) 50,924 (11,458) (150) 39,316 2011F 101,852 20,198 23,454 125,306 (46,200) 79,106 (16,194) 62,912 (14,155) (165) 48,593 2012F 120,311 25,613 28,778 149,089 (56,184) 92,905 (18,417) 74,488 (16,760) (181) 57,547 2010F 0.7 0.0 0.0 0.6 0.1 0.9 (0.7) 1.2 1.2 0.0 1.2
%change 2011F 0.6 0.0 0.0 0.5 0.1 0.8 (1.3) 1.3 1.3 0.0 1.3 2012F 0.6 0.0 0.0 0.5 0.1 0.8 (1.3) 1.3 1.3 0.0 1.3
2010F 82,596 15,892 19,263 101,859 (38,172) 63,688 (12,137) 51,550 (11,599) (150) 39,802
2011F 102,506 20,198 23,454 125,960 (46,228) 79,732 (15,989) 63,743 (14,342) (165) 49,237
Valuation methodology
Our revised PT of HK$9.00 is based on a P/BV multiple of 1.68x, which we apply to our FY11F BVPS forecast. In deriving our target multiple, we assume a sustainable ROE of 15.7%, revised from 17.6%. We use the Gordon Growth Model [target P/BV = (sustainable ROE long-term growth)/(cost of equity long-term growth)] to derive our fair P/BV range, assuming a cost of equity of 12.5% and a terminal growth rate of 7.8% (previously 8.8%). We derive our terminal growth by applying a 50% payout ratio to our long-term sustainable ROE.
Investment risks
Downside risks: severer-than-expected macro tightening could result in a sharp rise in bad debt costs. A sharper-than-expected fall in exports could hurt BCOM more than peers, given its exposure to Chinas coastal regions. Finally, a slowing economy would have negative implications for loan growth. Upside risks: A strong NIM rebound amid the interest rate hike cycle.
Nomura
119
14 January 2011
Bank of Communications
Lucy Feng
Financial statements
Profit and Loss (RMBmn) Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS
Source: Nomura estimates
FY08 117,106 (51,244) 65,862 8,837 1,783 794 11,414 77,276 (30,867) 46,409 (10,690) 35,719 35,719 (7,229) 28,490 (97) 28,393 28,393 (9,798) 18,595
FY09 116,743 (50,075) 66,668 11,399 2,126 1,385 14,910 81,578 (32,022) 49,556 (11,255) 38,301 38,301 (8,047) 30,254 (136) 30,118 30,118 (12,102) 18,016
FY10F 147,265 (64,669) 82,596 15,892 1,913 1,458 19,263 101,859 (38,172) 63,688 (12,137) 51,550 51,550 (11,599) 39,952 (150) 39,802 39,802 (15,981) 23,821
FY11F 189,729 (87,223) 102,506 20,198 1,722 1,534 23,454 125,960 (46,228) 79,732 (15,989) 63,743 63,743 (14,342) 49,401 (165) 49,237 49,237 (19,760) 29,476
FY12F 248,025 (126,962) 121,063 25,613 1,550 1,615 28,778 149,841 (56,216) 93,625 (18,171) 75,454 75,454 (16,977) 58,477 (181) 58,296 58,296 (23,391) 34,905
12.6 14.1 12.6 2.7 2.3 2.3 2.97 5.28 2.45 2.83 14.8 39.9 20.2 34.5 20.0 1.18 25.2 1.49
11.4 12.8 11.4 3.5 2.1 2.1 2.26 3.96 1.78 2.18 18.3 39.3 21.0 40.2 19.2 1.01 24.4 1.28
9.8 11.0 9.1 4.1 1.7 1.7 2.42 4.32 2.01 2.30 18.9 37.5 22.5 40.2 20.8 1.09 26.9 1.42
7.6 8.5 7.6 5.3 1.5 1.5 2.64 4.89 2.42 2.47 18.6 36.7 22.5 40.1 21.1 1.14 27.4 1.47
6.0 6.8 6.0 6.7 1.2 1.2 2.74 5.61 3.13 2.48 19.2 37.5 22.5 40.1 22.1 1.14 28.6 1.47
NIM rebound
Nomura
120
14 January 2011
Bank of Communications
Lucy Feng
Balance Sheet (RMBmn) As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RMB) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (RMB) Norm EPS (RMB) Fully diluted norm EPS (RMB) DPS (RMB) PPOP PS (RMB) BVPS (RMB) ABVPS (RMB) NTAPS (RMB)
Source: Nomura estimates
FY08 11,509 331,511 350,671 627,727 1,328,591 (29,815) 1,298,776 35,279 2,693 24,781 2,682,947 1,865,815 619,466 2,485,281 47,571 2,532,852 48,994 25,864 9,798 65,439 150,095 2,682,947 25,520
FY09 13,050 222,671 421,946 778,131 1,839,314 (37,776) 1,801,538 29,878 5,821 36,102 3,309,137 2,372,055 715,547 3,087,602 57,110 3,144,712 577 48,994 13,944 12,102 88,808 163,848 3,309,137 25,009
FY10F 18,556 256,072 599,992 857,407 2,206,413 (45,031) 2,161,382 31,372 5,239 37,907 3,967,927 2,917,628 779,143 3,696,771 52,113 3,748,883 56,343 33,887 15,981 112,833 219,044 3,967,927 28,043
FY11F 21,368 294,482 690,893 944,830 2,713,256 (53,640) 2,659,616 32,940 4,715 39,802 4,688,647 3,559,506 834,466 4,393,972 47,721 4,441,693 56,343 59,583 19,760 111,267 246,954 4,688,647 32,964
FY12F 24,508 338,655 792,418 1,041,247 3,343,729 (62,725) 3,281,003 34,588 4,244 41,793 5,558,454 4,342,597 891,606 5,234,203 43,851 5,278,054 56,343 90,858 23,391 109,809 280,400 5,558,454 39,023
71.2 5.6
77.5 5.0
75.6 5.5
76.2 5.3
77.0 5.0
Nomura
121
14 January 2011
Maintained
NOMURA INTERNATIONAL (HK) LIMITED
lucy.feng@nomura.com donger.wang@nomura.com
BUY
Closing price on 7 Jan Price target Upside/downside Difference from consensus FY11F net profit (RMBmn) Difference from consensus
Source: Nomura
Action
In view of CMBs assets sensitive balance sheet, we assume a higher NIM based on our expectation of further rounds of symmetrical rate hikes in 2011F. As 89% of CMBs LGFV loans are under full coverage, we do not think the new risk weighting and loan classifications on LGFV loans will have a significant impact on earnings. We would view any sentiment-driven underperformance as an opportunity to accumulate.
HK$20.20
HK$26.86
(from HK$26.36)
Catalysts
We see further rounds of rate hikes as a catalyst for sector NIM expansion. Anchor themes The operating environment remains favourable for Chinese banks in 2011F, but negative sentiment from uncertainties over policies and asset quality continues to weigh on valuations. Better visibility on regulatory policies (capital and provisioning) could trigger a re-rating in the near term.
Nomura vs consensus
Our net profit forecast is above consensus estimates due to our higher NIM and lower credit cost assumptions.
Absolute (HK$) Absolute (US$) Relative to Index Market cap (US$mn) Estimated free float (%) 52-week range (HK$) 3-mth avg daily turnover (US$mn) Stock borrowability Major shareholders (%) China Merchants Steam Navigation China Ocean Shipping
Source: Company, Nomura estimates
Nomura
122
14 January 2011
Lucy Feng
Old 2012F 98,757 16,184 20,659 119,416 (46,624) 72,792 (11,294) 61,618 (14,480) 47,137 2010F 55,571 10,745 15,151 70,723 (30,905) 39,817 (3,933) 35,967 (8,452) 27,515 2011F 73,824 13,182 17,578 91,403 (36,828) 54,575 (7,095) 47,580 (11,181) 36,398 2012F 96,221 16,184 20,659 116,880 (46,577) 70,303 (8,483) 61,940 (14,556) 47,384 2010F 4.3 0.0 0.0 3.4 0.2 5.8 65.2 (0.7) (0.7) (0.7)
% change 2011F 3.0 0.0 0.0 2.5 0.1 4.0 26.7 0.7 0.7 0.7 2012F 2.6 0.0 0.0 2.2 0.1 3.5 33.1 (0.5) (0.5) (0.5)
2010F 57,942 10,745 15,151 73,093 (30,979) 42,114 (6,496) 35,700 (8,390) 27,311
2011F 76,073 13,182 17,578 93,651 (36,873) 56,778 (8,988) 47,889 (11,254) 36,635
Nomura
123
14 January 2011
Lucy Feng
47.2
47.8
CMB
CCB
BOC
Minsheng
8,000
Exhibit 167. Proportion of LGFV loans under different categories (as of 30 September, 2010)
Coverage FULL BASIC PARTIAL NO Classification method Ratio is 100% or above - borrower's cash flow is sufficient Ratio is between 70-100% and a portion of the loan requires fiscal guarantee Ratio is between 30-70% and requires partial fiscal guarantee Ratio is below 30% and majority of the loan requires fiscal guarantee Total amount:
Source: Company Data, 21st Century Business Herald, Nomura research
Balance (RMBbn) Proportion (%) 116.10 11.56 2.13 0.17 130 89.34 8.89 1.64 0.13
Valuation methodology
Our revised price target of HK$26.86 is based on 2.8xP/BV applied to our FY11F BVPS forecast. Our sustainable ROE is 17.0%. We use the Gordon Growth Model [target P/BV = (sustainable ROE long-term growth) / (cost of equity long-term growth)] to derive our fair P/BV range, assuming a cost of equity of 11.5% and a terminal growth rate of 8.5%. We derive our terminal growth rate by applying a 50% payout ratio to our long-term sustainable ROE.
Investment risks
Downside risks: severer-than-expected macro tightening could result in a sharp rise in bad debt costs. In addition, a slowing economy would have negative implications for loan growth.
Nomura
124
14 January 2011
Lucy Feng
Financial statements
Profit and Loss (R MBmn) Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Norm alised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (% ) ROA (% ) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FD EPS
Source: Nomura estimates
FY08 72,635 (25,750) 46,885 7,744 493 522 8,759 55,644 (23,742) 31,902 (3,703) (1,451) 26,748 11 26,759 (5,813) 20,946 131 21,077 21,077 (5,883) 15,194
FY09 65,838 (25,474) 40,364 7,993 1,057 2,434 11,484 51,848 (26,562) 25,286 (2,971) 22,315 69 22,384 (4,149) 18,235 18,235 18,235 (4,015) 14,220
FY10F 95,622 (37,681) 57,942 10,745 1,318 3,089 15,151 73,093 (30,979) 42,114 (6,496) 35,617 83 35,700 (8,390) 27,311 27,311 27,311 (8,193) 19,117
FY11F 128,145 (52,072) 76,073 13,182 1,582 2,815 17,578 93,651 (36,873) 56,778 (8,988) 47,790 99 47,889 (11,254) 36,635 36,635 36,635 (10,991) 25,645
FY12F 162,433 (63,676) 98,757 16,184 1,289 3,186 20,659 119,416 (46,624) 72,792 (11,294) 61,498 119 61,618 (14,480) 47,137 47,137 47,137 (14,141) 32,996
12.8 17.0 12.8 2.2 3.3 3.3 3.42 5.29 2.05 3.24 15.7 42.7 21.7 27.9 28.6 1.46 36.3 1.86
18.5 24.7 18.5 1.2 3.6 3.6 2.23 3.65 1.50 2.14 22.1 51.2 18.5 22.0 21.2 1.00 25.9 1.23
13.7 18.3 13.7 2.2 2.7 2.7 2.69 4.44 1.87 2.58 20.7 42.4 23.5 30.0 23.8 1.19 31.1 1.55
9.8 13.0 9.8 3.1 2.1 2.1 2.96 4.99 2.13 2.85 18.8 39.4 23.5 30.0 24.3 1.31 31.7 1.71
7.2 9.6 7.2 4.2 1.6 1.6 3.22 5.29 2.16 3.13 17.3 39.0 23.5 30.0 25.6 1.39 33.4 1.82
NIM rebound
Nomura
125
14 January 2011
Lucy Feng
Balance Sheet (RMBmn) As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RMB) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (RMB) Norm EPS (RMB) Fully diluted norm EPS (RMB) DPS (RMB) PPOP PS (RMB) BVPS (RMB) ABVPS (RMB) NTAPS (RMB)
Source: Nomura estimates
FY08 6,928 193,394 167,745 310,446 874,362 (21,608) 852,754 402 15,062 2,521 22,545 1,571,797 1,250,648 210,288 1,460,936 31,080 1,492,016 266 14,707 19,836 7,924 37,048 79,515 1,571,797 9,677
FY09 8,342 277,738 200,212 377,072 1,185,822 (24,005) 1,161,817 466 16,008 2,786 23,500 2,067,941 1,608,146 307,023 1,915,169 59,989 1,975,158 19,119 27,592 6,296 39,776 92,783 2,067,941 9,732
FY10F 11,294 327,631 271,057 477,948 1,412,690 (29,733) 1,382,957 559 19,210 3,622 35,250 2,529,528 1,968,328 346,908 2,315,236 77,986 2,393,222 21,604 43,709 8,193 62,798 136,305 2,529,528 9,602
FY11F 13,499 386,938 323,977 606,025 1,686,529 (37,282) 1,649,247 671 23,052 4,708 52,875 3,060,991 2,401,361 392,770 2,794,131 101,381 2,895,512 21,604 66,354 10,991 66,530 165,479 3,060,991 12,236
FY12F 15,989 457,483 383,741 768,698 2,016,357 (46,777) 1,969,580 805 27,662 6,121 79,313 3,709,392 2,929,660 445,505 3,375,165 131,796 3,506,961 21,604 96,350 14,141 70,335 202,431 3,709,392 15,384
69.9 5.1
73.7 4.5
71.8 5.4
70.2 5.4
68.8 5.5
Nomura
126
14 January 2011
Maintained
NOMURA INTERNATIONAL (HK) LIMITED
lucy.feng@nomura.com donger.wang@nomura.com
BUY
Closing price on 7 Jan Price target Upside/downside Difference from consensus FY11F net profit (RMBmn) Difference from consensus
Source: Nomura
Action
Our higher NIM assumption is based on an expectation of further rounds of symmetrical (OK) rate hikes in 2011F. As over 57% of CITIC Banks loans had maturities within 1 year, we believe it to be more sensitive to interest rate adjustment. Pressure on deposit cost was also reduced due to a lower LDR (from 79.4% at end-09 to 73.3% at end-3Q10). On the back of the expected completion of the rights issue and given an undemanding valuation (1.3x FY11F P/B), we maintain our BUY rating.
HK$5.22
HK$6.30
(from HK$6.60)
Catalysts
We see further rounds of rate hikes as a catalyst for sector NIM expansion. Anchor themes The operating environment remains favourable for Chinese banks in 2011F, but negative sentiment from uncertainties over policies and asset quality continues to weigh on valuations. Better visibility on regulatory policies (capital and provisioning) could trigger a re-rating in the near term.
Nomura vs consensus
Our net profit forecast is above consensus estimates due to our higher NIM and lower credit cost assumptions.
Oct10
Jul10
Nov10
LGFV loans
As of 30 September, 2010, CITIC had outstanding LGFV loans of RMB 220bn, or 18.3% of total loans. As over 99% of its LGFV loans are under full coverage, we estimate the impact on CAR from the new risk weighting requirement will be limited (CAR and T1 CAR reducing 0.42pct and 0.33pct respectively on our estimates) and only marginal NPL increase from the re-classification of LGFV loans. We do not expect additional credit costs on CITIC if they can meet a loanloss provision ratio of 2.5%, which we assume for the end of FY11F.
Absolute (HK$) Absolute (US$) Relative to Index Market cap (US$mn) Estimated free float (%) 52-week range (HK$) 3-mth avg daily turnover (US$mn) Stock borrowability Major shareholders (%) Citic Group BBVA
Source: Company, Nomura estimates
Dec10 6m 6.3 6.5 (8.5) 26,211 51.1 6.42/4.19 36.38 Easy 62.3 15.0
Jun10
Aug10
Nomura
127
14 January 2011
Sep10
105 100 95 90 85 80 75 70
Lucy Feng
Valuation methodology
Our revised price target of HK$6.30 is based on 1.5x P/BV applied to our FY11F BVPS forecast assuming sustainable ROE of 14.3%. We use the Gordon Growth Model [target P/BV = (sustainable ROE long-term growth)/(cost of equity long-term growth)] to derive our fair P/BV, assuming a cost of equity of 12% and a terminal growth rate of 7.2%. We derive our terminal growth rate by applying a 50% payout ratio to our long-term sustainable ROE.
Investment risks
Downside risks: severer-than-expected macro tightening could result in a sharp rise in bad debt costs. In addition, a slowing economy would have negative implications for loan growth.
Nomura
128
14 January 2011
Lucy Feng
Financial statements
Profit and Loss (RMBmn) Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Norm alised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (% ) ROA (% ) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS
Source: Nomura estimates
FY08 58,867 (22,776) 36,091 3,045 873 363 4,281 40,372 (16,148) 24,224 (5,379) (1,065) 17,780 17,780 (4,426) 13,354 13,354 13,354 (2,088) 11,266
FY09 57,376 (20,147) 37,229 5,137 383 536 6,057 43,285 (19,132) 24,153 (2,619) 21,534 21,534 (4,705) 16,829 16,829 16,829 (3,435) 13,394
FY10F 79,889 (31,829) 48,060 5,895 363 514 6,771 54,831 (22,668) 32,163 (6,509) 25,654 25,654 (6,285) 19,368 19,368 19,368 (6,779) 12,590
FY11F 116,648 (57,352) 59,296 8,225 341 616 9,182 68,478 (27,077) 41,401 (10,099) 31,302 31,302 (7,669) 23,633 23,633 23,633 (8,271) 15,361
FY12F 142,432 (72,052) 70,380 11,457 319 740 12,515 82,896 (32,621) 50,274 (12,206) 38,068 38,068 (9,326) 28,742 28,742 28,742 (10,060) 18,682
NIM rebound
13.8 16.7 13.8 1.1 1.9 1.9 3.33 5.43 2.32 3.11 10.6 40.0 24.9 15.6 14.9 1.21 19.8 1.62
10.6 12.8 10.6 1.9 1.7 1.7 2.48 3.82 1.53 2.28 14.0 44.2 21.8 20.4 16.9 1.14 21.6 1.45
9.0 10.9 9.0 3.9 1.5 1.5 2.68 4.46 1.94 2.52 12.3 41.3 24.5 35.0 17.5 0.97 23.2 1.28
8.6 10.4 7.9 4.0 1.2 1.2 2.76 5.43 2.91 2.51 13.4 39.5 24.5 35.0 17.2 0.96 22.7 1.27
6.7 8.1 6.7 5.2 1.1 1.1 2.73 5.52 3.00 2.52 15.1 39.4 24.5 35.0 17.1 0.98 22.6 1.30
Nomura
129
14 January 2011
Lucy Feng
Balance Sheet (RMBmn) As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RMB) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (RMB) Norm EPS (RMB) Fully diluted norm EPS (RMB) DPS (RMB) PPOP PS (RMB) BVPS (RMB) ABVPS (RMB) NTAPS (RMB)
Source: Nomura estimates
FY08 3,693 50,446 203,243 198,223 664,924 (13,572) 651,352 9,129 2,068 69,998 1,188,152 945,835 122,525 1,068,360 24,131 1,092,491 3 39,033 7,776 2,088 46,761 95,658 1,188,152 9,046
FY09 4,480 81,808 219,523 206,260 1,065,649 (15,170) 1,050,479 11,733 2,095 199,898 1,776,276 1,341,927 298,024 1,639,951 28,072 1,668,023 4,210 39,033 (1) 14,504 3,435 47,072 104,043 1,776,276 10,157
FY10F 8,311 91,625 407,262 230,922 1,301,236 (16,884) 1,284,352 11,968 201,897 2,236,337 1,744,505 342,484 2,086,989 28,172 2,115,162 4,252 39,033 23,750 6,779 47,361 116,923 2,236,337 11,091
FY11F 11,223 102,620 549,949 258,535 1,584,324 (22,605) 1,561,719 12,207 203,916 2,700,170 2,131,469 377,490 2,508,960 28,283 2,537,242 4,295 47,620 37,618 8,271 65,122 158,632 2,700,170 12,792
FY12F 13,579 114,934 665,394 289,452 1,903,223 (29,914) 1,873,308 12,451 205,955 3,175,074 2,582,980 381,740 2,964,721 28,283 2,993,004 4,338 47,620 54,512 10,060 65,540 177,732 3,175,074 14,700
70.3 8.1
79.4 5.9
74.6 5.2
74.3 5.9
73.7 5.6
Nomura
130
14 January 2011
131
Maintained
NOMURA INTERNATIONAL (HK) LIMITED
lucy.feng@nomura.com donger.wang@nomura.com
NEUTRAL
Action
Trading at 1.31x and 8.5x FY11F P/B and P/E respectively, Minshengs valuation is at the lower end of the sector range. Given its relatively high proportion of demand deposits and LDR ratio, we believe Minsheng will benefit the most from China entering into an interest hike cycle. However, frequent capital raising puts downside pressure on ROE. We maintain NEUTRAL with a price target of HK$7.40.
Closing price on 7 Jan Price target Upside/downside Difference from consensus FY11F net profit (RMBmn) Difference from consensus
Source: Nomura
HK$6.59
HK$7.40
(s et on 22 Oc t 10)
Catalysts
We see further rounds of rate hikes as a catalyst for sector NIM expansion. Anchor themes The operating environment remains favourable for Chinese banks in 2011F, but negative sentiment from uncertainties over policies and asset quality continues to weigh on valuations. Better visibility on regulatory policies (capital and provisioning) could trigger a re-rating in the near term.
Nomura vs consensus
Our forecasts are lower than consensus because of our lower assumption on loan yields and higher assumption on funding costs.
Absolute (HK$) Absolute (US$) Relative to Index Market c ap (US$mn) Estimated free float (%) 52-week range (HK$) 3-mth avg daily turnover (US$mn) Stock borrowability Major shareholders (%) New Hope China Life
Source: Company, Nomura estimates
6m (4.9) (4.7) (37.2) 18,872 26.0 7.59/6.06 15.86 Easy 5.0 4.0
Nomura
131
14 January 2011
Lucy Feng
Valuation methodology
Our price target of HK$7.4 is based on 1.49x P/BV applied to our FY11F BVPS forecast as well as a sustainable ROE of 14.34%. This is to reflect our estimation of ROE dilution due to frequent capital raising. We use the Gordon Growth Model [target P/BV = (sustainable ROE long-term growth)/(cost of equity long-term growth)] to derive our fair P/BV, assuming a cost of equity of 12.0% and a terminal growth rate of 7.17%. We derive our terminal growth rate by applying a 50% payout ratio to our longterm sustainable ROE.
Investment risks
Downside risks: severer-than-expected macro tightening could result in a sharp rise in bad debt costs. In addition, a slowing economy would have negative implications for loan growth. Upside risks: A strong NIM rebound amid the interest rate hike cycle.
Nomura
132
14 January 2011
Lucy Feng
Financial statements
Profit and Loss (RMBmn) Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS
Source: Nomura es timates
14.3 16.0 14.3 1.3 2.0 2.0 3.40 6.31 2.85 3.46 13.6 51.7 24.7 19.1 15.2 0.80 20.2 1.06
9.1 10.2 9.1 0.9 1.5 1.5 2.59 4.29 1.80 2.49 23.3 50.1 22.7 9.2 17.1 0.98 22.1 1.26
9.2 10.3 9.2 2.1 1.5 1.5 2.91 4.89 2.09 2.80 13.9 49.6 25.0 20.0 17.3 1.00 23.1 1.33
8.5 9.5 8.5 2.4 1.3 1.3 3.03 5.11 2.22 2.88 15.0 46.9 25.0 20.0 17.9 1.00 23.9 1.34
6.6 7.4 6.6 3.1 1.2 1.2 3.09 5.23 2.33 2.90 16.4 45.3 25.0 20.0 18.7 1.00 25.0 1.34
Nomura
133
14 January 2011
Lucy Feng
Balance Sheet (RMBmn) As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RMB) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (RMB) Norm EPS (RMB) Fully diluted norm EPS (RMB) DPS (RMB) PPOP PS (RMB) BVPS (RMB) ABVPS (RMB) NTAPS (RMB)
Source: Nomura es timates
FY08 17,648 17,095 181,878 129,254 35,313 658,360 (11,885) 646,475 6,496
20,191 1,054,350 785,786 154,836 42,012 982,634 17,045 999,679 792 18,823 3,359 1,506 30,192 53,879 1,054,350 7,921
33,178 1,426,392 1,127,938 166,188 23,060 1,317,186 20,310 1,337,496 860 22,262 11,390 1,113 53,271 88,036 1,426,392 7,397
38,155 1,794,273 1,441,505 207,735 23,060 1,672,300 23,898 1,696,198 26,714 14,979 3,220 53,163 98,076 1,794,273 10,344
43,878 2,209,956 1,773,051 249,282 33,061 2,055,394 28,201 2,083,594 31,414 20,981 4,024 69,942 126,362 2,209,956 14,561
50,460 2,681,967 2,180,853 299,138 33,061 2,513,052 33,277 2,546,329 31,414 29,373 4,909 69,942 135,638 2,681,967 19,737
83.8 5.1
78.3 6.2
75.1 5.5
74.9 5.7
74.8 5.1
Nomura
134
14 January 2011
Maintained
NOMURA INTERNATIONAL (HK) LIMITED
lucy.feng@nomura.com donger.wang@nomura.com
NEUTRAL
Action
The CBRC has approved SPDBs plan to give China Mobile a 20% stake in exchange for RMB39.8bn. We expect the capital injection to boost SPDBs FY10F T1 CAR/ total CAR to 10%/14%, although we expect FY10F/11F net profit to reduce by 30%/17% if the new LGFV policy is applied. We maintain a NEUTRAL rating, with our PT revised to RMB14.65 to reflect our earnings revisions.
Closing price on 7 Jan Price target Upside/downside Difference from consensus FY11F net profit (RMBmn) Difference from consensus
Source: Nomura
RMB13.23
RMB14.65
(from RMB15.84)
Catalysts
We see further rounds of rate hikes as a catalyst to expand the sectors NIM. Anchor themes The operating environment remains favourable for Chinese banks in 2011F, but negative sentiment from uncertainties over policies and asset quality continues to weigh on valuations. Better visibility on regulatory policies (capital and provisioning) could trigger a re-rating in the near term.
Nomura vs consensus
Our earnings forecasts are lower than consensus, we think owing to our lower NIM and higher credit cost assumptions.
Aug10
Jun10
Jul10
Sep10
Absolute (RMB) Absolute (US$) Relative to Index Market c ap (US$mn) Estimated free float (%) 52-week range (RMB) 3-mth avg daily turnover (US$mn) Stock borrowability Major shareholders (%) Shanghai International Group Shanghai International Trust and Investment
Source: Company, Nomura estimates
Nomura
135
14 January 2011
Lucy Feng
Old 2012F 67,812 6,091 73,903 (27,388) 46,514 (10,896) 35,619 (8,370) 27,248 2010F 42,407 4,339 46,746 (19,506) 27,240 (3,791) 23,449 (5,511) 17,939 2011F 52,354 5,138 57,492 (23,007) 34,484 (5,660) 28,825 (6,774) 22,051 2012F 64,650 6,091 70,741 (27,240) 43,501 (10,896) 32,606 (7,662) 24,943 2010F 5.18 0.00 4.70 0.53 7.68 0.00 8.92 8.92 8.92
Change (%) 2011F 5.03 0.00 4.58 0.54 7.28 0.00 8.71 8.71 8.71 2012F 4.89 0.00 4.47 0.54 6.93 0.00 9.24 9.24 9.24
2010F 44,603 4,339 48,941 (19,609) 29,333 (3,791) 25,542 (6,002) 19,539
2011F 54,988 5,138 60,127 (23,131) 36,996 (5,660) 31,336 (7,364) 23,972
Valuation methodology
Our new price target of RMB14.65 is based on a P/BV of 1.4x applied to FY10F BVPS and is on the back of a revised sustainable ROE of 16.5% (previously 17.7%). We use a Gordon Growth model (target P/BV = (sustainable ROE long-term growth)/(cost of equity long-term growth)) to derive our fair P/BV range, assuming a cost of equity of 12% and a terminal growth rate of 8.3% (methodology unchanged). We derive our terminal growth rate by applying a 50% payout ratio to our long-term sustainable ROE.
Nomura
136
14 January 2011
Lucy Feng
Financial statements
Profit and Loss (RMBmn) Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS
Source: Nomura es timates
6.0 6.6 6.0 0.9 1.8 1.8 3.05 5.39 2.32 3.06 8.6 45.8 18.2 5.6 35.8 1.13 43.6 1.37
8.8 9.8 8.8 1.1 1.7 1.7 2.30 4.13 1.67 2.46 9.2 45.1 23.6 10.0 24.1 0.90 31.4 1.17
9.3 10.3 9.3 1.1 1.4 1.4 2.60 4.58 1.81 2.76 8.9 40.1 23.5 10.0 20.2 1.08 26.3 1.41
7.6 8.4 7.6 1.3 1.2 1.2 2.73 5.30 2.39 2.92 8.5 38.5 23.5 10.0 17.5 1.08 22.9 1.41
6.6 7.4 6.6 1.2 1.2 2.86 6.02 2.96 3.06 8.2 37.1 23.5 18.6 1.02 24.3 1.33
NIM rebound
Nomura
137
14 January 2011
Lucy Feng
Balance Sheet (RMBmn) As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RMB) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (RMB) Norm EPS (RMB) Fully diluted norm EPS (RMB) DPS (RMB) PPOP PS (RMB) BVPS (RMB) ABVPS (RMB) NTAPS (RMB)
Source: Nomura es timates
FY08 3,096 77,773 159,505 81,016 171,472 697,564 (16,298) 681,267 538 6,969
FY09F 3,825 167,676 201,294 123,640 53,057 928,855 (18,347) 910,508 603 8,048
FY10F 104,035 171,030 248,706 139,369 68,975 1,107,127 (22,138) 1,084,989 724 8,852
FY11F 197,891 174,451 298,447 157,345 89,667 1,315,425 (27,798) 1,287,627 869 9,738
FY12F 295,365 177,940 358,136 177,926 116,567 1,564,760 (38,694) 1,526,065 1,042 10,711
127,790 1,309,426 947,294 232,974 44,482 1,224,750 42,974 1,267,724 23 5,661 11,195 697 24,127 41,680 1,309,426 8,467
154,066 1,622,718 1,295,342 209,710 20,113 1,525,165 29,465 1,554,631 134 8,830 15,892 1,325 41,907 67,953 1,622,718 7,460
184,880 2,011,559 1,554,411 272,623 20,244 1,847,278 38,305 1,885,583 13,687 26,504 1,954 83,832 125,977 2,011,559 8,478
221,856 2,437,890 1,865,293 354,410 20,389 2,240,091 49,797 2,289,888 13,687 43,753 2,397 88,165 148,002 2,437,890 10,295
266,227 2,929,980 2,238,352 460,733 20,547 2,719,632 64,736 2,784,367 13,687 39,428 92,498 145,613 2,929,980 13,895
73.6 3.2
71.7 4.2
71.2 6.3
70.5 6.1
69.9 5.0
Nomura
138
14 January 2011
Maintained
NOMURA INTERNATIONAL (HK) LIMITED
lucy.feng@nomura.com donger.wang@nomura.com
NEUTRAL
Action
Currently trading at 1.5x FY11F PB, we reiterate our Neutral stance on SZDB as it continues to move closer to being part of the Ping An Group, which we doubt is likely to bring any material benefits to SZDB minorities, at least in the near term. However, we do think the stock will have valuation support from here as the market prices in the possibility of privatisation.
Closing price on 7 Jan Price target Upside/downside Difference from consensus FY11F net profit (RMBmn) Difference from consensus
Source: Nomura
RMB16.41
RMB16.64
(from RMB18.73)
Catalysts
We see further rounds of rate hikes as a catalyst to expand the sectors NIM. Anchor themes The operating environment remains favourable for Chinese banks in 2011F, but negative sentiment from uncertainties over policies and asset quality continues to weigh on valuations. Better visibility on regulatory policies (capital and provisioning) could trigger a re-rating in the near term.
Nomura vs consensus
Our net profit forecast is above consensus estimates due to our higher NIM and lower credit cost assumptions.
120 110 100 90 80 70 60 Oct10 Dec10 3m 1.2 1.9 0.3 6m (6.3) (4.3) (21.6) 7,686 79.6 23.85/15.67 113.1 Hard 29.9 2.5 Sep10 Nov10
Jul10
Aug10
Jun10
Absolute (RMB) Absolute (US$) Relative to Index Market cap (US$mn) Estimated free float (%) 52-week range (RMB) 3-mth avg daily turnover (US$mn) Stock borrowability Major shareholders (%) China PingAn CEIEC
Source: Company, Nomura estimates
Nomura
139
14 January 2011
Lucy Feng
Old 2012F 22,964 2,694 4,235 27,200 (11,958) 15,242 (2,373) 12,876 (2,962) 9,915 2010F 15,947 1,594 2,685 18,632 (8,799) 9,832 (1,708) 8,077 (1,858) 6,220 2011F 19,179 2,072 3,368 22,548 (10,286) 12,262 (1,812) 10,438 (2,401) 8,037 2012F 22,303 2,694 4,235 26,538 (11,926) 14,612 (2,174) 12,446 (2,863) 9,583 2010F 4.4 0.0 0.0 3.8 0.4 6.8 11.8 5.7 5.7 5.7
% change 2011F 3.0 0.0 0.0 2.5 0.3 4.4 9.1 3.6 3.6 3.6 2012F 3.0 0.0 0.0 2.5 0.3 4.3 9.1 3.5 3.5 3.5
2010F 16,647 1,594 2,685 19,332 (8,833) 10,498 (1,910) 8,541 (1,965) 6,577
2011F 19,747 2,072 3,368 23,115 (10,314) 12,802 (1,977) 10,813 (2,487) 8,326
Valuation methodology
Our revised PT of RMB16.64 is based on 1.5x P/B applied our FY11F BVPS forecast. We use a sustainable ROE of 14.4% (previously: 16.9%). We use a Gordon Growth model (target P/BV = sustainable ROE long-term growth) / (cost of equity long-term growth) to derive our fair P/B range, assuming a cost of equity of 13% and a terminal growth rate of 7.2% (previously: 8.5%). We derive our terminal growth by applying a 50% payout ratio to our long-term sustainable ROE.
Investment risks
Downside risks: We believe that more severe-than-expected macro tightening could result in a sharp rise in bad debt costs. A slowing economy would have negative implications for loan growth, in our view. The concept of market and operation-related risks has only been introduced to the bank over the past few years. The banks improved risk management techniques, introduced over the past decade, have never been stress-tested in a severe economic downturn. Upside risks: 1) Synergies achieved after the integration with Ping An Bank and 2) better expense control that cuts the cost/income ratio.
Nomura
140
14 January 2011
Lucy Feng
Financial statements
Profit and Loss (R MBmn) Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Norm alised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (% ) ROA (% ) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FD EPS
Source: Nomura estimates
NIM rebound
72.1 73.1 72.1 0.1 3.1 3.1 3.02 6.34 3.17 3.17 13.0 44.0 22.5 10.0 4.2 0.15 5.2 0.19
10.1 10.3 10.1 2.5 2.5 2.48 4.20 1.78 2.41 14.2 48.8 18.7 27.3 0.95 33.5 1.16
8.3 8.5 8.3 1.1 1.7 1.7 2.62 4.35 1.83 2.52 13.9 45.7 23.0 10.0 24.3 0.99 31.5 1.29
7.1 7.2 7.1 1.4 1.5 1.5 2.68 4.65 2.05 2.59 14.6 44.6 23.0 10.0 22.8 1.04 29.5 1.34
5.9 6.0 5.9 1.7 1.3 1.3 2.67 4.68 2.14 2.54 15.6 44.0 23.0 10.0 23.0 1.03 29.9 1.34
Nomura
141
14 January 2011
Lucy Feng
Balance Sheet (RMBmn) As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RMB) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (RMB) Norm EPS (RMB) Fully diluted norm EPS (RMB) DPS (RMB) PPOP PS (RMB) BVPS (RMB) ABVPS (RMB) NTAPS (RMB)
Source: Nomura estimates
FY08 982 30,737 38,786 78,388 34,733 283,741 (2,027) 281,715 1,915
FY09 779 15,593 53,465 72,623 40,923 359,517 (3,955) 355,563 2,034
FY10F 857 17,931 67,900 79,886 45,016 449,397 (5,479) 443,918 2,238
FY11F 943 20,621 82,159 87,874 49,517 539,276 (7,118) 532,158 2,462
FY12F 1,037 23,714 100,234 96,662 54,469 647,131 (9,148) 637,983 2,708
7,183 474,440 359,359 43,443 46,880 449,682 8,357 458,039 3,105 890 61 12,344 16,401 474,440 1,928
46,831 587,811 454,635 81,710 23,196 559,541 7,800 567,341 3,105 4,386 12,978 20,470 587,811 2,444
76,563 734,309 577,387 89,881 24,569 691,837 8,769 700,606 3,583 8,708 658 20,754 33,703 734,309 2,848
97,090 872,825 698,638 98,869 26,080 823,587 9,834 833,421 3,583 14,605 833 20,383 39,404 872,825 3,837
129,706 1,046,513 852,338 108,756 27,742 988,836 11,032 999,868 3,583 21,932 991 20,139 46,645 1,046,513 5,201
79.0 3.5
79.1 3.5
77.8 4.6
77.2 4.5
75.9 4.5
Nomura
142
14 January 2011
Industrial Bank 6 0 1 1 6 6 C H
F I N AN C I AL S / B AN K S | C H I N A
Maintained
NOMURA INTERNATIONAL (HK) LIMITED
lucy.feng@nomura.com donger,wang@nomura.com
BUY
Closing price on 7 Jan Price target Upside/downside Difference from consensus FY11F net profit (RMBmn) Difference from consensus
Source: Nomura
Action
At 1.32x and 6.6x FY11F P/BV and P/E, respectively, Industrial Banks valuation is largely on par with the sector. We have revised our PT to RMB 33.00 based on a new PB multiple, with our estimates rolling over to FY11F. We maintain our BUY rating, based on the expectation of marginal impact from LGFV loans and potential synergies from the co-operation with China Unicom.
RMB26.52
RMB33.00
(from RMB34.00)
Catalysts
We see further rounds of rate hikes as a catalyst to expand the sectors NIM. Anchor themes The operating environment remains favourable for Chinese banks in 2011F, but negative sentiment from uncertainties over policies and asset quality continues to weigh on valuations. Better visibility on regulatory policies (capital and provisioning) could trigger a re-rating in the near term.
Nomura vs consensus
Our forecasts are higher than consensus, mainly owing to our higher NIM assumptions and lower estimates of funding costs.
Aug10
Jun10
Jul10
Sep10
Absolute (RMB)
Dec10
Absolute (US$) Relative to Index Market c ap (US$mn) Estimated free float (%) 52-week range (RMB) 3-mth avg daily turnover (US$mn) Stock borrowability Major shareholders (%) Fujian Prov ince Finance Bureau Hang Seng Bank
Source: Company, Nomura estimates
Nomura
143
14 January 2011
Industrial Bank
Lucy Feng
Old 2012F 55,335 6,573 7,838 63,172 (25,604) 37,569 (2,334) 35,235 (8,104) 27,131 2010F 34,747 4,207 5,413 40,160 (17,207) 22,953 (1,025) 21,928 (5,043) 16,884 2011F 42,409 5,258 6,492 48,901 (20,931) 27,970 (1,702) 26,268 (6,042) 20,226 2012F 50,698 6,573 7,838 58,536 (25,408) 33,128 (2,367) 30,761 (7,075) 23,686 2010F 9.7 0.0 0.0 8.4 0.8 14.1 (4.3) 15.0 15.0 15.0
% change 2011F 9.3 0.0 0.0 8.1 0.8 13.5 (1.3) 14.5 14.5 14.5 2012F 9.1 0.0 0.0 7.9 0.8 13.4 (1.4) 14.5 14.5 14.5
2010F 38,126 4,207 5,413 43,539 (17,349) 26,190 (981) 25,209 (5,798) 19,411
2011F 46,364 5,258 6,492 52,856 (21,098) 31,759 (1,680) 30,078 (6,918) 23,160
Valuation methodology
Our revised price target of RMB 33.00 is based on 1.7x P/BV applied to our FY11F BVPS forecast on the back of sustainable ROE of 15.6%. We use a Gordon Growth model (target P/BV = sustainable ROE long-term growth)/(cost of equity long-term growth)) to derive our fair P/BV range, assuming a cost of equity of 12.5% and a terminal growth rate of 7.8%. We derive our terminal growth by applying a 50% payout ratio to our long-term sustainable ROE.
Nomura
144
14 January 2011
Industrial Bank
Lucy Feng
Financial statements
Profit and Loss (RMBmn) Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS
Source: Nomura es timates
11.6 14.5 11.6 1.7 2.7 2.7 2.67 5.35 4.26 1.10 12.0 41.4 18.9 19.8 25.9 1.22 31.9 1.50
10.0 12.4 10.0 1.9 2.2 2.2 2.25 4.13 3.37 0.76 13.6 43.8 22.9 18.8 24.5 1.13 31.6 1.46
7.3 9.1 7.3 1.3 1.6 1.6 2.69 4.67 3.51 1.16 12.4 39.8 23.0 10.0 25.2 1.32 32.7 1.72
6.6 8.2 6.6 1.5 1.3 1.3 2.81 4.97 3.76 1.20 12.3 39.9 23.0 10.0 22.0 1.32 28.6 1.71
5.6 7.0 5.6 1.8 1.1 1.1 2.87 5.22 4.02 1.20 12.4 40.5 23.0 10.0 21.2 1.29 27.5 1.68
Nomura
145
14 January 2011
Industrial Bank
Lucy Feng
Balance Sheet (RMBmn) As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RMB) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (RMB) Norm EPS (RMB) Fully diluted norm EPS (RMB) DPS (RMB) PPOP PS (RMB) BVPS (RMB) ABVPS (RMB) NTAPS (RMB)
Source: Nomura es timates
FY08 2,307 109,923 125,517 157,872 117,275 499,387 (9,401) 489,986 306 5,442 351 11,919 1,020,899 632,426 195,632 123,238 951,296 20,581 971,877 5,000 14,292 2,250 27,480 49,022 1,020,899 4,149
FY09 2,904 56,049 169,000 197,598 195,884 701,597 (9,635) 691,963 335 6,283 323 11,823 1,332,162 900,884 238,776 114,879 1,254,539 18,025 1,272,564 5,000 23,354 2,500 28,743 59,597 1,332,162 3,779
FY10F 46,714 58,851 213,611 227,187 215,473 834,361 (10,415) 823,946 335 7,225 323 12,323 1,605,989 1,081,061 286,531 124,061 1,491,653 19,828 1,511,481 5,750 40,824 1,941 45,993 94,508 1,605,989 3,850
FY11F 76,791 61,794 262,819 261,273 237,020 1,003,582 (11,891) 991,692 335 8,309 323 13,372 1,913,728 1,297,274 343,837 135,079 1,776,190 21,811 1,798,000 5,750 61,668 2,316 45,993 115,727 1,913,728 5,819
FY12F 113,935 64,884 323,166 300,472 260,722 1,208,265 (14,015) 1,194,250 335 9,556 323 14,525 2,282,168 1,556,728 412,604 148,302 2,117,634 23,992 2,141,626 5,750 86,086 2,713 45,993 140,542 2,282,168 8,239
79.0 4.8
77.9 4.5
77.2 5.9
77.4 6.0
77.6 6.2
Nomura
146
14 January 2011
Huaxia Bank 6 0 0 0 1 5 C H
F I N AN C I AL S / B AN K S | C H I N A
Maintained
NOMURA INTERNATIONAL (HK) LIMITED
lucy.feng@nomura.com donger.wang@nomura.com
REDUCE
Action
After revising our earnings estimates for FY10F-FY12F, Huaxias return is still at the low end of its peers. Trading at 1.3x FY11F PB, 12x FY11F PE, we maintain our REDUCE rating. Although SME business could still back up its profitability, we believe the overhang on LGFV loans will have a potential impact given they accounted for 15.5% of total loans. We roll over our PT to RMB 8.71 for FY11F.
Closing price on 7 Jan Price target Upside/downside Difference from consensus FY11F net profit (RMBmn) Difference from consensus
Source: Nomura
RMB11.46
RMB8.71
(from RMB8.03)
Catalysts
We see further rounds of rate hikes as a catalyst to expand the sectors NIM. Anchor themes The operating environment remains favourable for Chinese banks in 2011F, but negative sentiment from uncertainties over policies and asset quality continues to weigh on valuations. Better visibility on regulatory policies (capital and provisioning) could trigger a re-rating in the near term.
Nomura vs consensus
Our forecasts are lower than consensus, likely because we assume lower loan yields and higher funding costs.
120 115 110 105 100 95 90 85 80 Oct10 Nov10 Dec10 3m 6.1 6.9 5.2 Sep10
Aug10
Jun10
Jul10
Absolute (RMB) Absolute (US$) Relative to Index Market c ap (US$mn) Estimated free float (%) 52-week range (RMB) 3-mth avg daily turnover (US$mn) Stock borrowability Major shareholders (%) Deutsche Bank Shougang Group
Source: Company, Nomura estimates
Nomura
147
14 January 2011
Huaxia Bank
Lucy Feng
Old 2012F 30,421 1,887 2,287 32,708 (15,408) 17,300 (7,028) 10,272 (2,568) 7,704 2010F 20,075 1,374 1,719 21,794 (10,409) 11,385 (4,559) 6,826 (1,706) 5,119 2011F 24,680 1,612 1,981 26,661 (12,663) 13,997 (5,685) 8,312 (2,078) 6,234 2012F 30,212 1,887 2,287 32,499 (15,400) 17,099 (7,072) 10,027 (2,507) 7,520 2010F 1.6 0.0 0.0 1.5 0.1 2.8 0.0 4.7 4.7 4.7
Change % 2011F 0.9 0.0 0.0 0.8 0.1 1.5 (0.9) 3.1 3.1 3.1 2012F 0.7 0.0 0.0 0.6 0.1 1.2 (0.6) 2.4 2.4 2.4
2010F 20,405 1,374 1,719 22,124 (10,421) 11,703 (4,559) 7,143 (1,786) 5,358
2011F 24,895 1,612 1,981 26,876 (12,672) 14,204 (5,631) 8,573 (2,143) 6,430
Valuation Methodology
Our new price target of RMB 8.71 is based on a 1.0x P/B multiple applied to FY11F BVPS on the back of sustainable ROE of 13.0%. We use a Gordon Growth model (target P/BV = (sustainable ROE long-term growth)/(cost of equity long-term growth)) to derive our fair P/BV range (methodology unchanged), assuming a cost of equity of 13.5% and a terminal growth rate of 6.5%. We derive our terminal growth by applying a 50% payout ratio to our long-term sustainable ROE.
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Financial statements
Profit and Loss (RMBmn) Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS
Source: Nomura estimates
FY08 37,370 (20,910) 16,460 823 185 107 1,115 17,575 (8,674) 8,901 (4,507) (387) 4,007 4,007 (936) 3,071 3,071 3,071 (649) 2,422
FY09 32,488 (16,699) 15,788 1,024 204 123 1,351 17,140 (8,935) 8,205 (3,330) (47) 4,828 4,828 (1,067) 3,760 3,760 3,760 (649) 3,111
FY10F 41,159 (20,754) 20,405 1,374 234 111 1,719 22,124 (10,421) 11,703 (4,559) 7,143 7,143 (1,786) 5,358 5,358 5,358 (695) 4,663
FY11F 55,110 (30,215) 24,895 1,612 269 100 1,981 26,876 (12,672) 14,204 (5,631) 8,573 8,573 (2,143) 6,430 6,430 6,430 (964) 5,465
FY12F 72,481 (42,061) 30,421 1,887 310 90 2,287 32,708 (15,408) 17,300 (7,028) 10,272 10,272 (2,568) 7,704 7,704 7,704 (1,156) 6,549
17.1 13.0 17.1 1.1 2.1 2.1 2.47 5.61 3.49 2.12 6.3 49.4 23.4 21.1 15.0 0.46 19.6 0.61
15.2 11.6 15.2 1.1 1.9 1.9 2.01 4.13 2.24 1.89 7.9 52.1 22.1 17.3 13.0 0.48 16.7 0.61
12.7 9.6 12.7 1.0 1.5 1.5 2.22 4.49 2.41 2.07 7.8 47.1 25.0 13.0 12.7 0.58 16.9 0.78
12.2 9.3 12.2 1.2 1.3 1.3 2.33 5.16 3.04 2.11 7.4 47.1 25.0 15.0 11.3 0.60 15.1 0.80
10.2 7.7 10.2 1.5 1.2 1.2 2.44 5.81 3.67 2.14 7.0 47.1 25.0 15.0 12.2 0.62 16.3 0.82
NIM rebound
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Balance Sheet (RMBmn) As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RMB) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (RMB) Norm EPS (RMB) Fully diluted norm EPS (RMB) DPS (RMB) PPOP PS (RMB) BVPS (RMB) ABVPS (RMB) NTAPS (RMB)
Source: Nomura estimates
FY08 1,589 22,904 124,844 92,189 135,342 355,477 (9,809) 345,668 4,545 4,518 731,599 485,350 118,572 85,987 689,909 14,085 703,994 4,991 802 649 21,164 27,605 731,599 6,487
FY09 1,824 32,363 89,248 83,193 209,952 430,226 (10,773) 419,452 4,968 4,595 845,595 581,678 112,247 107,759 801,684 13,530 815,214 4,991 1,621 649 23,121 30,381 845,595 6,457
FY10F 26,532 33,982 106,205 91,512 230,947 510,051 (12,512) 497,539 5,067 4,825 996,609 692,197 126,835 109,914 928,946 13,665 942,611 4,991 6,284 695 42,029 53,998 996,609 7,633
FY11F 42,478 35,681 126,384 100,663 254,042 600,967 (14,810) 586,157 5,169 5,066 1,155,639 823,715 146,278 112,112 1,082,105 13,801 1,095,906 4,991 11,749 964 42,029 59,733 1,155,639 9,021
FY12F 61,238 37,465 150,397 110,729 279,446 712,627 (17,897) 694,731 5,272 5,319 1,344,597 980,221 169,610 114,354 1,264,184 13,939 1,278,124 4,991 18,298 1,156 42,029 66,473 1,344,597 10,992
73.2 3.8
74.0 3.6
73.7 5.4
73.0 5.2
72.7 4.9
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Any Authors named on this report are Research Analysts unless otherwise indicated
Analyst Certification
We, Lucy Feng and Donger Wang, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Important Disclosures
Conflict-of-interest disclosures
Important disclosures may be accessed through the following website: http://www.nomura.com/research/pages/disclosures/disclosures.aspx . If you have difficulty with this site or you do not have a password, please contact your Nomura Securities International, Inc. salesperson (1-877865-5752) or email grpsupport@nomura.com for assistance.
Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to price target defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (exAsia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.
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Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009
STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Price Target - Current Price) / Current Price, subject to limited management discretion. In most cases, the Price Target will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008)
STOCKS A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.
Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008
STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A 'Strong buy' recommendation indicates that upside is more than 20%. A 'Buy' recommendation indicates that upside is between 10% and 20%. A 'Neutral' recommendation indicates that upside or downside is less than 10%. A 'Reduce' recommendation indicates that downside is between 10% and 20%. A 'Sell' recommendation indicates that downside is more than 20%. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
Price targets
Price targets, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any price target may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
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