BEA China NIM dips in 1H14

Increasing competition for deposits partly to blame.

With increasing competition for deposits and softening interbank loan yield, BEA China’s NIM declined in 1H14 compared with 2H13 (2.46 percent).

According to a research note from Maybank Kim Eng on Hong Kong banks, other parts of BEA group also suffered slightly from rising funding costs. Maybank Kim Eng also lowered its NIM forecast from 1.95 percent to 1.92 percent for 2014.

The report also noted that instead of growing new loans, BEA China issued letters of credit to other BEA business units to expand cross-border loans. Maybank Kim Eng said it has raised its net fees CAGR forecast from 11.5 percent to 12 percent during 2013-16.

Here's more from Maybank Kim Eng:

Improving cost efficiency on track. BEA group will maintain tight control on staff costs and administrative expenses. BEA China will moderate the pace of branch opening in the coming years.

As such, management aims to achieve single-digit expense growth in 2014 (+10% YoY in 2013). We expect BEA to lower its cost-income ratio from 55.5% in 2013 to 53-55% during 2014-16.

Potential rise in credit costs. BEA China’s NPL ratio increased slightly in Jun 2014 compared to the Dec 2013 level (0.48%). This was related to specific customers. It has not engaged in commodity trade finance.

BEA China has stopped the bills discounting business to most customers and closely monitored the operating conditions of its SME customers. Asset quality at other parts of BEA group remained benign. We raise our credit cost forecast from 0.12% to 0.17% for 2014.