Perspective on the annual reports of 42 listed banks: "increasing profits without increasing revenue" is highlighted

As the highlight of the disclosure of the annual reports of listed companies, on April 29, the 2023 annual reports of 42 A-share listed banks were collected. In the past year, 42 banks achieved a total net profit attributable to the parent company of more than 2.09 trillion yuan, of which 37 banks achieved an increase in net profit attributable to the parent company, and 14 banks achieved a "double-double" growth rate. However, behind the sparkling performance, the banking industry is in a state of challenges, with the situation of "increasing profits without increasing revenue", the narrowing of net interest margins, and the shrinkage of personal housing loan business all test the operation of banks.

14 banks achieved double growth

In the past year, 42 banks have achieved a total net profit attributable to the parent of more than 2.09 trillion yuan, 37 banks have achieved growth in net profit attributable to the parent company, and 14 banks have achieved double growth in net profit attributable to the parent company.

From the perspective of profit growth, local small and medium-sized banks are quite eye-catching, and Bank of Hangzhou ranks first in the growth rate of net profit attributable to the parent company, and the bank will achieve a net profit attributable to the parent company of 14.383 billion yuan in 2023, a year-on-year increase of 23.15%. Changshu Bank, Qilu Bank, Bank of Suzhou, Jiangyin Bank, Bank of Chengdu and Suzhou Rural Commercial Bank also performed well, with net profit attributable to the parent company increasing by 19.6%, 18.02%, 17.41%, 16.83%, 16.22% and 16.04% respectively year-on-year. Bank of Qingdao, Bank of Jiangsu, Ruifeng Rural Commercial Bank, Qingdao Rural Commercial Bank, Bank of Ningbo, and Shanghai Rural Commercial Bank will also have a year-on-year growth rate of more than 10% in net profit attributable to the parent company in 2023.

At the same time, some banks' operating income is under pressure, resulting in the pressure of "increasing profits but not increasing income". A reporter from Beijing Business Daily combed and found that in 2023, more than 10 banks will "increase profits but not revenue".

Specifically, among the large state-owned banks, in 2023, the operating income of Industrial and Commercial Bank of China and China Construction Bank will decline by 3.73% and 1.79% year-on-year respectively, and the net profit attributable to the parent company will increase by 0.79% and 2.44% year-on-year respectively. Among the joint-stock banks, Ping An Bank, China CITIC Bank, China Merchants Bank, and Minsheng Bank also had a similar situation, among them, Ping An Bank achieved operating income of 164.699 billion yuan, a year-on-year decrease of 8.4%, and a net profit attributable to the parent company of 46.455 billion yuan, a year-on-year increase of 2.1%.

Among the local small and medium-sized banks, Bank of Shanghai, Chongqing Rural Commercial Bank, Zijin Rural Commercial Bank and Bank of Chongqing all achieved growth in net profit attributable to their parent companies, but their revenue decreased by 4.8%, 3.57%, 1.93% and 1.89% year-on-year respectively.

In addition, the revenue and net profit attributable to the parent company of Shanghai Pudong Development Bank, Bank of Zhengzhou, Industrial Bank, Everbright Bank and Bank of Guiyang showed a year-on-year decline.

In the view of Xue Hongyan, vice president of Xingtu Financial Research Institute, in 2023, banks' "increasing profits but not increasing revenue" will mainly stem from the stabilizer role of provision adjustment. Compared with the average annual growth rate of more than 10 points in the previous two years, some banks deliberately slowed down the pace of provisions last year.

In an interview with a reporter from Beijing Business Daily, Liao Hekai, an analyst of Jinle Function, analyzed that the main reason for some banks to "increase profits but not increase revenue" is mainly due to the continuous adjustment of business structure, focusing on strengthening risk control, opening up sources and reducing expenditures, strengthening operations and improving profit levels, and continuing to reduce the business direction of high risk and high returns.

In the first quarter of this year, the performance pressure of A-share listed banks is still significant, according to the observation of a reporter from Beijing Business Daily, although the net profit attributable to the parent of some banks has increased compared with the same period last year, the decline in revenue has been greater, and some banks have achieved a double increase in revenue and net profit attributable to the parent in 2023, but in the first quarter of this year, they have fallen into a situation of "increasing profits but not increasing income", and the net profit of many large and medium-sized banks has also shown negative growth.

More than ninety percent of banks' net interest margins have narrowed

Affected by factors such as the decline in market interest rates and the continuous concession of the real economy, the net interest margin (i.e. net interest yield) of A-share listed banks is facing severe challenges. Among the 42 banks, only the net interest margin of Bank of Qingdao rose, and the net interest margin of 41 banks declined.

As of the end of 2023, Bank of Qingdao's net interest margin was 1.83%, an increase of 0.07 percentage points from the previous year. The bank mentioned in the financial report that it was mainly due to the strict control of the cost rate of deposits and bonds payable, and the decrease in the cost ratio of interest-bearing liabilities, thereby hedging the impact of the decline in the return on assets and the growth of the scale of deposits, and achieving an increase in net interest margin.

As of the end of last year, the net interest margin indicators of the above seven banks decreased by 48 basis points, 37 basis points, 34 basis points, 31 basis points, 31 basis points, 31 basis points, 30 basis points, and 30 basis points respectively compared with the previous year.

As for the reasons for the large decline in net interest margin, Ping An Bank said that the net interest margin decreased due to the continuous concession of the real economy, the adjustment of asset structure, and the impact of loan repricing effect and changes in market interest rates. Bank of Jiangsu mentioned that the decline in market interest rates and LPR (loan prime rate), coupled with the repricing effect after the decline in LPR since last year and the adjustment of interest rates on existing housing loans, put pressure on the yield of interest-bearing assets of commercial banks, and the net interest margin showed a narrowing trend.

Although the net interest margin of Changshu Rural Commercial Bank and Changsha Bank is at a high level among the listed banks, it has not been able to avoid the trend of narrowing net interest margin. As of the end of 2023, Changshu Rural Commercial Bank's net interest margin was 2.86%, down 16 basis points from the previous year. Changsha Bank's net interest margin was 2.31%, down 0.1 percentage points year-on-year, the bank said that the growth rate of net interest income was lower than the average daily growth rate of interest-bearing assets, and at the same time, affected by the LPR multiple cuts, the average interest rate of loans showed a downward trend, and the average interest rate of interest-bearing assets was under pressure, and the net interest margin narrowed year-on-year.

Dong Ximiao, chief researcher of Zhaolian, predicts that overall, banks will continue to cut deposit rates in 2024 to further reduce the cost of funds and ease the pressure of narrowing interest rate spreads. In addition to lowering deposit rates, banks should also reduce interest subsidies and fees on deposits other than interest to further reduce the hidden costs of deposits.

At the 2023 results conference and performance briefing, a number of bank management also revealed the direction of the next step to stabilize interest margins. As Liu Jianjun, President of the Postal Savings Bank, said, on the liability side, we will consolidate the advantage of interest payment, further strengthen wealth management, and let customers retain more demand deposits through comprehensive AUM assessment, and try to increase the proportion of demand deposits, and also carry out certain control over medium and long-term deposits. Lin Shu, general manager of the Planning and Finance Department of IB, mentioned that the liability side has strengthened the control over the interest rate of deposits and loans, and adopted control measures for some high-cost liabilities to ensure a reasonable decline in deposits, and at the same time increased the proportion of low-cost settlement deposits.

Source: Beijing Business Daily