Bank of Communications' NPLs now stabilizing

BoCom’s NPL ratio increased a mere 2bp in 2Q13.

According to CCB International, 1H13 net profit beats on defensive NIM. BoCom reported 1H13 net profit of RMB34.8b, up 12.0% YoY and 7% higher than consensus. 

NIM exhibited some defensiveness, retreating 3bp QoQ and 4bp YoY in 2Q13. Annualized ROE and ROA for the quarter were 18.0% and 1.3%. 

Here's more from CCBI:

• NPLs stabilizing. BoCom’s NPL ratio increased a mere 2bp QoQ in 2Q13. If we consider that the NPL ratio in 3Q12-1Q13 climbed 5bp each quarter, it is safe to assume by the small increase in 2Q13 that NPLs have begun to stabilize.

• Credit cost declined QoQ, nevertheless stable in 1H13. BoCom’s credit cost was only 42bp in 2Q13 vs. 67bp in 1Q13.

However, credit cost in 1H13 was 55bp, a 2bp YoY increase implying that the bank managed to keep credit costs stable and avoid exerting any extra pressure on earnings.

• Strong fee income growth as fallout from CBRC’s crackdown dissipates. Net fee income grew 24.4% YoY in  2Q13 and 23.9% YoY in 1Q13.

Fees from management services (custody and wealth management services) and agent services (e.g. fund sales) were the primary drivers of growth. They were up 70% YoY and 36% YoY, respectively.

• BoCom’s NPLs and NIM exhibit defensiveness, consistent with the bank’s state-owned status and SOE client structure.

• Poor deposit growth the immediate challenge. Deposits increased only 6% HoH in 1H13. BoCom is hamstrung in this regard as its channel franchise is not nearly as extensive as the other state-owned banks yet its deposit pricing follows the same model as the Big-four, which is to say that its pricing is lower than that of joint-stock banks like CMB and Minsheng. This makes the hemorrhaging of deposits difficult to avoid.