CCB's reluctance to compete for deposits in 3Q14 drives LDR to 72%

It's offset migration effect towards time deposits.

China Construction Bank's 3Q14 results were below consensus, with net profit at CNY59.6b in 3Q14, up 5.0% YoY, below consensus forecast of CNY60.5b. Key discrepancies were lower noninterest income and higher credit cost.

According to a research note from Maybank Kim Eng, meanwhile, while the bank had stable NIM at 2.8% in 3Q14, there was decline in non-interest income.

CCB remained reluctant to compete for deposits in 3Q14, thus lifting LDR to 72%.

This has offset the negative effect of migration towards time deposits.

Maybank Kim Eng has cut its deposit and asset CAGR from 8% and 7.5% to 7.5% and 7.0% during 2013-16. It keeps its NIM forecast at 2.78-2.8% for 2014-15, meanwhile.

Here's more from Maybank Kim Eng:

Net fees and other non-interest income fell 3.8% YoY and 1.2% YoY in 3Q14, mainly due to lower fee charges to SMEs and micro-enterprises as well as decline in precious metals trading gain and net life insurance income.

We thus lower our net fees and other non-interest income CAGR from 12% and 5% to 7.5% and -14.5% during 2013-16.

Mixed picture in asset quality. Excluding the acquisition effect of BIC, we estimate CCB’s new NPL formation increased to CNY17b in 3Q14 (0.73% of total loans) from CNY13.7b in 2Q14 (0.51% of total loans).

We expect write-offs and disposal of NPLs amounting to CNY13b in 3Q14 (CNY12b in 1H14). CCB raised the provision-to-loan ratio to 2.62% in 3Q14 (2.59% in 2Q14). Its credit costs rose to 0.69% in 3Q14 (0.65% without BIC).

However, CCB recorded lower impairment charges of CNY0.2b for other non-loan assets (CNY1b in 2Q14). We keep our conservative credit cost forecast at 0.73-0.77% for 2014-15. We also project impairment charges of CNY2-2.8b for CCB’s non-loan assets for 2014-15.

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