At present, the banking industry is generally under pressure, and some banks have taken the initiative to deal with the "cold air" by making provisions to smooth profits and reduce costs. According to the data of the first quarter, the performance of 7 listed banks showed "increasing profits but not increasing revenue". At the same time, the year-on-year growth rate of profit before provision and net profit attributable to the parent company of many banks is significantly different, and the performance of different types of banks is differentiated. Under the premise of stable operation of asset quality, some banks have achieved the purpose of profit adjustment by reducing provisions.
Interviewed industry insiders generally said that in terms of growth rate, the contribution of listed banks' provisions to profits weakened in the first quarter. In general, there is still some room for listed banks to adjust their profits through provisions in the future, and different types of listed banks have different adjustment space.
The overall growth rate of performance has slowed down
In the first quarter, the total operating income of 42 A-share listed banks exceeded 1.47 trillion yuan, a decrease from the same period last year. Among them, 31 banks' net profit attributable to the parent company achieved positive year-on-year growth, and 24 banks' operating income and net profit attributable to the parent company achieved a year-on-year "double increase". However, on the whole, the operating performance of listed banks was under pressure, and the year-on-year growth rate of operating income and net profit attributable to the parent company of many banks declined. Among them, the net profit attributable to the parent of Bank of Zhengzhou decreased the most, with a net profit attributable to the parent company of 967 million yuan in the first quarter, a year-on-year decrease of 18.57%; Ping An Bank achieved operating income of 38.770 billion yuan in the first quarter, with the largest year-on-year decline of 14.03%.
Nine banks, including the Postal Savings Bank and China CITIC Bank, achieved operating income of more than 50 billion yuan in the first quarter. Among them, the operating income of Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of China was more than 100 billion yuan, but the operating income and net profit attributable to the parent company of the four banks all declined year-on-year. In addition to the four major banks, the operating income and net profit attributable to the parent company of four banks, including Chongqing Rural Commercial Bank and Bank of Guiyang, showed a year-on-year decline.
The slowdown in bank performance growth was mainly attributable to the decline in net interest margins due to factors such as continued concessions to the real economy, asset restructuring, loan repricing effects, and changes in market interest rates. It is worth noting that many banks are still facing the pressure of "increasing profits but not increasing revenue". The reporter found that although the phenomenon of "increasing profits but not increasing income" of banks in the first quarter has eased, compared with the same period last year, there are still 7 banks whose operating income has decreased but the net profit attributable to the parent has increased.
According to the data, in the first quarter, Bank of Communications and Shanghai Pudong Development Bank, Ping An Bank, Huaxia Bank and Everbright Bank all experienced a year-on-year decline in operating income and a year-on-year increase in net profit attributable to the parent company. Local small and medium-sized banks, such as Bank of Shanghai and Bank of Lanzhou, are also facing a similar situation.
Ni Jun, an analyst at GF Securities, said that in the context of bank concessions, the overall revenue growth rate of state-owned banks in 2023 has turned negative, and most banks have maintained positive profit growth, and the core contribution comes from the decline in credit costs (provisions), a trend that has continued for two years.
Provisions decreased overall
As one of the important regulatory indicators of asset quality, the provision coverage ratio has always attracted the attention of the market and investors, and is an important indicator to measure the adequacy of the loan loss reserve of commercial banks, and also reflects the bank's ability to offset risks. According to the data, as of the end of the first quarter, the asset quality of listed banks was stable and improving, and the provision coverage ratio remained high as a whole.
Specifically, the provision coverage ratio of Bank of Hangzhou, Bank of Changshu, Bank of Wuxi and Bank of Chengdu remained high, exceeding 500%. In addition, the provision coverage ratio of more than 20 banks at the end of the first quarter decreased compared with the end of last year, of which 8 banks fell by more than 10 percentage points. For example, the provision coverage ratio of Bank of Suzhou at the end of the first quarter was 491.66%, a decrease of 31.11 percentage points from the end of last year, the largest decline.
Overall, the latest data disclosed by the State Administration of Financial Supervision shows that as of the end of 2023, the provision coverage ratio of commercial banks was 205.14%, slightly lower than 205.85% at the end of 2022.
According to the explanation in the Financial Rules for Financial Enterprises (Draft for Comments) issued by the Ministry of Finance, taking banking financial institutions as an example, the basic standard of provision coverage ratio required by the regulatory authorities is 150%, and if it exceeds the regulatory requirements by more than 2 times, it should be regarded as having a tendency to hide profits, and the excess provision should be restored to undistributed profits for distribution.
According to accounting standards, provisions will be included in asset impairment losses or credit impairment losses to offset current profits. The decrease in provisions made a positive contribution to profit growth. "In the first quarter, the asset impairment losses of listed banks maintained negative growth, which means that banks still feed back profits by making fewer provisions." Liu Xiaoting, an analyst at Caixin Securities, said.
According to the data, the year-on-year growth rate of profit before provision of 14 banks was negative. Bank of Suzhou's profit before provision in the first quarter decreased by 1.79% year-on-year, net profit attributable to the parent company increased by 12.29% year-on-year, and the provision coverage ratio at the end of the first quarter decreased by 31.11 percentage points compared with the end of last year. Provisions offset profits to a certain extent.
In addition, there is a clear differentiation within the bank. Among the A-share listed banks, more than eighty percent of the urban rural commercial banks and more than three percent of the joint-stock banks showed positive year-on-year growth in pre-provision profits, while only the state-owned banks showed positive year-on-year growth in pre-provision profits of Bank of Communications. According to the data, in the first quarter, the year-on-year growth rate of pre-provision profits of state-owned banks, joint-stock banks, urban commercial banks and rural commercial banks was -4.12%, -3.88%, 5.89% and 9.07% respectively.
Lou Feipeng, a researcher at the Postal Savings Bank, said frankly that banks have the phenomenon of "increasing profits but not increasing revenues", which may be due to the fact that banks have increased profits by reducing provisions, and on the other hand, they may have further improved their operating performance by reducing their operational efficiency.
The feedback has weakened
How strong is the provision back-feeding? How long can the smoothing of profits last? Institutional sources and interviewed experts generally said that in the first quarter, the lack of provisions was still an important profit support. In terms of growth rate, the contribution has weakened. On the whole, there is still some room for banks to adjust profits through provisions, but it is limited.
"From the perspective of individual banks, in the case of convergence of indicators such as net interest margin, asset quality and provision are still the primary reasons for the difference in the growth rate of net profit attributable to the parent of different banks, followed by the speed of asset expansion. However, the strength of provisions to feed back profits has weakened, and some banks may face the current situation of gradually depleting the 'surplus grain' of provisions that can be used to feed back profits. Guosen Securities analyst Wang Jian analyzed.
Lou Feipeng told reporters that banks have increased net profits by making fewer provisions, and there is still some room for improvement. However, different types of banks face different situations, and their room for adjustment is also different.
The reporter found that as of the end of the first quarter, the provision coverage ratio of nearly 20 listed banks was more than 300%, and most of them were local small and medium-sized banks; The provision coverage ratio of 10 listed banks was less than 200%, including 5 joint-stock banks, and Minsheng Bank had the lowest provision coverage ratio of 149.36% at the end of the first quarter.
In the view of Dong Ximiao, chief researcher of Zhaolian, provisions are equivalent to a reservoir, and more provisions are made when the business is good, which is enough to cope with the uncertainty of the future; When the bad time is bad, the provision is released, and then the profit is smoothed. "On the whole, there is not much room for bank provisions to smooth profits in the future, and it depends on the specific level of provisions of different types of banks."
Fight the "interest rate spread defense war"
Under the premise of stable asset quality, although provisions can adjust bank profits, in the final analysis, they are only a shift in financial performance indicators. According to industry insiders, listed banks should still proceed from their own realities, return to their roots, promote sustainable business development, and enhance their core competitiveness.
Looking at the first quarter, the continuous narrowing of net interest margin is still a drag on the growth of operating income and net profit of listed banks. For example, in the first quarter, the net interest margins of the four major banks, Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, and Bank of China, were 1.48%, 1.44%, 1.57%, and 1.44%, respectively, down 13 basis points, 16 basis points, 13 basis points, and 15 basis points from the end of 2023. According to the data, as of the end of 2023, the net interest margin of commercial banks has fallen to 1.69%, falling below the 1.7% mark for the first time.
In response to the pressure on net interest margins, many banks are looking forward to taking the initiative to strengthen cost control on the liability side. At present, it has become the consensus of all parties to reduce the deposit interest rate and reduce the cost of bank liabilities. The reporter noted that recently, traditional savings tools such as smart notice deposits and medium and long-term large-amount certificates of deposit have been removed from the market or stopped.
Dong Ximiao suggested that in 2024, on the one hand, commercial banks can continue to increase their support for the real economy, especially small and micro enterprises, tap new growth points, and increase net interest income with volume premium; On the other hand, we are committed to improving the absorption capacity of core deposits, enhancing customer loyalty through comprehensive capabilities such as products and services, and continuously reducing debt costs. At the same time, it actively develops intermediate business, such as expanding high-value-added businesses such as cross-border value-added services, and further increases the proportion of intermediate business revenue, forming a strong support for operating income.
In view of the downward trend of net interest margin, as early as more than a month ago, the annual report performance briefing held by various banks, many bank management has made judgments. "In the short term, interest rate spreads are running at a low level, and I am afraid it will continue for a while." Yao Mingde, vice president of the Industrial and Commercial Bank of China, said. The management of Bank of China also said at the results conference that interest rate spreads are still under great pressure this year.