Recently, Zheshang Bank released its financial report for the first quarter of 2024, achieving operating income of 18.407 billion yuan during the reporting period, a year-on-year increase of 16.65%; net profit attributable to shareholders was 5.913 billion yuan, a year-on-year increase of 5.12%.
On the whole, the bank's Q1 performance continued the excellent performance of the previous year, especially the growth rate of revenue far exceeded that of its peers. In this regard, many securities firms such as CICC, China Securities Construction Investment, Ping An Securities, Industrial Securities, Guosen Securities, and GF Securities have given positive comments; Among them, CICC, Industrial Securities, and GF Securities made it clear in the research report that the Q1 revenue growth rate of Zheshang Bank "exceeded expectations".
（数据来源：choice）
The capital market has also given feedback on the performance of Zheshang Bank, and since the beginning of this year, the bank's A-share share price has risen by more than 20% since the low point of the year. To be widely recognized by the market, what did Zheshang Bank do right? The author believes that risk management and smart income generation are the two cores.
(Source: Futu)
1. Good risk management capabilities to create a high-quality growth base
The first is risk management.
In Q1 2024, the capital adequacy ratio of Zheshang Bank reached 12.54%, an increase of 0.35 percentage points from the end of 2023. The bank's Tier 1 capital adequacy ratio and core Tier 1 capital adequacy ratio also maintained an upward trend, both increasing by 0.38 percentage points to 9.9% and 8.6% respectively compared with the end of 2023.
（来源：choice）
The continuous thickening of the asset "safety cushion" reflects the marginal improvement trend of asset quality of Zheshang Bank in the past two years, which can also be confirmed from other data dimensions.
In Q1 2024, the non-performing loan ratio of Zheshang Bank will be 1.44%, the same as that at the end of 2023; However, from a long-term perspective, the bank's non-performing loan ratio has maintained a downward trend since 2021.
（来源：choice）
Ping An Securities pointed out in the research report that since 2022, the asset quality of Zheshang Bank has seen marginal improvement, the non-performing write-off and disposal efforts have gradually increased, and the non-performing identification has gradually become stricter.
Further, the continuous strengthening of Zheshang Bank's risk management capabilities is inseparable from its adherence to the strategy of "weakly sensitive assets to the economic cycle". In 2023, the bank will achieve a revenue of 20.285 billion yuan from weakly sensitive assets in the economic cycle, accounting for 33.02% of the total revenue, an increase of nearly 10 percentage points from when it was proposed in 2022.
In short, the strategy is to reduce customer concentration, increase the proportion of assets in weak cyclical industries, increase the proportion of middle income, and reduce the impact of macroeconomic fluctuations, so as to achieve "when the economy is good, banks operate well; When the economy is poor, the business situation is not very bad; overall relatively stable".
Judging from the results, the NPL rate of Zheshang Bank's weak-cyclical industry in 2023 is only 0.33%, which will indeed help improve the overall asset quality.
According to management, by 2027, Zheshang Bank's weakly sensitive assets to the economic cycle will account for 50% of revenue. With the deepening of the bank's binding with businesses with weak economic cycles, its ability to navigate the cycle will be further strengthened.
In addition to continuously increasing the "weak sensitive assets of the economic cycle", strengthening the risk management capability with digital technology, that is, smart risk control, is also the key to Zheshang Bank's ability to build a high-quality growth base.
In today's rapidly changing financial environment, banks are facing increasing types and complexities of risk, and traditional risk management approaches are no longer sufficient to meet new challenges. By leveraging advanced data analytics tools, artificial intelligence, and machine learning, banks can process and analyze large-scale data sets in real time to more accurately predict and assess credit, market, and operational risk.
Digital technology is not an option, but a necessary tool for banks to improve their risk management capabilities and maintain their competitiveness.
To this end, Zheshang Bank has continued to promote the construction of digital and intelligent risk control in recent years. Up to now, the bank has accessed 20 types of external data such as market supervision, justice, credit investigation, invoices, and administrative penalties, and strives to solve the problem of information asymmetry under the traditional credit model. Improve the level of intelligent early warning, intelligent monitoring and intelligent analysis in the whole cycle and process, and maintain the early warning rate of risk signals for corporate early warning customers in the whole bank at more than 95%, achieving 100% systematic and full coverage of operation supervision.
2. Smart income generation creates a strong growth engine
Let's look at smart income generation.
Although this data was not disclosed in the first quarter report of 2024, Zheshang Bank's smart revenue accounted for 49% in 2023, which has become one of the important engines of the bank's revenue growth.
To understand the importance of smart income generation, we must first understand the current context of the banking industry's widening spreads.
In the fourth quarter of 2023, the net interest margin of the banking industry decreased by 4 basis points quarter-on-quarter to 1.69%, reaching the lowest level in nearly 20 years.
Therefore, net interest income, the main source of revenue for commercial banks, will also come under pressure, which is also the main reason for the slowdown or even decline in the revenue growth of the industry mentioned above.
To this end, Zheshang Bank put forward the "321" revenue expansion strategy, focusing on the "five major articles" to deepen the investment in weak cyclical industries, and continue to tap the potential of green income and green income, which is also the core of its smart income generation.
"3" refers to the priority of investing in small diversified assets, including retail, microfinance and supply chain finance. That is, by strictly controlling the industry and customer concentration, we can form a group of huge customer groups that can continue to generate income for the bank, and avoid violent fluctuations in performance caused by large customers, which is actually in line with the connotation of "weakly sensitive assets to the economic cycle" mentioned above. In 2023, 56% of the bank's full-year credit increment was invested in small, diversified assets, a figure that is expected to increase further.
According to the company's management at the 2023 annual results meeting, in 2024, the bank will adhere to the main line of digital reform, focusing on key scenarios such as households, enterprises, and industries, and 70% of the new loans will be invested in small and diversified assets.
"2" refers to the continuous expansion of green income and green income. In an environment where net interest income is under pressure, generating more non-interest income is clearly the most effective focus.
China Securities also pointed out that Zheshang Bank benefited from the outstanding performance of its financial market business in the first quarter, and its revenue growth significantly exceeded expectations. In 2024Q1, the bank's non-interest net income was 6.589 billion yuan, a year-on-year increase of 63.34%; Non-interest net income accounted for 35.80% of operating income, an increase of 10.24% year-on-year.
"1" refers to unswervingly reducing the interest rate of deposits. In an environment where spreads are narrowing, it is clearly straightforward and effective to use low-interest deposits as much as possible to generate income.
According to the calculation of Ping An Securities, the net interest margin of Zheshang Bank in the single quarter of 2024Q1 increased by 3BP to 1.63% compared with 23Q4, of which the return on assets in the single quarter increased by 10BP quarter-on-quarter, and the interest-bearing debt cost ratio decreased by 2BP quarter-on-quarter. As a result, the bank's net interest income in the first quarter of 2024 achieved a positive year-on-year growth of 0.6%, which is not easy to see in the context of the general pressure on the industry's interest margin business.
Overall, at a time when the banking industry is facing the dilemma of revenue growth, Zheshang Bank has found a unique growth path.
3. Epilogue
Long-term funds have long noticed the value depression of Zheshang Bank. According to the bank's first quarterly report, in the first quarter, three insurance companies appeared in the top ten circulating shareholders, with a total of 2.461 billion shares, and the total shareholding accounted for 8.96% of the outstanding shares, which is the epitome of the continuous increase in insurance capital in the past year.
Although the share price of Zheshang Bank has achieved a wave of gains this year, from a vertical point of view, whether it is PE or PB, it is still at the low level of the historical range, and the performance has entered the upward channel. In terms of horizontal comparison, even in the case of leading performance, the valuation level of Zheshang Bank is not far behind that of other joint-stock banks, which further highlights the bank's investment cost performance.
（来源：choice）
Disclaimer: This article does not constitute any investment advice to anyone. Intellectual Property Rights Statement: The intellectual property rights of Bread Finance works are owned by Shanghai Miaotan Network Technology Co., Ltd.