China CITIC Bank 2014 earnings increases 3.9% YoY to RMB40.7b

There are challenges to watch, though.

China CITIC Bank’s 2014 earnings were up 3.9% YoY to RMB40.7b, in line with consensus.

According to a research note from CCB International, further, PPOP growth was strong at 21.0%, driven by robust fee income (57% YoY) from bank card and WMP services.

Credit costs rose to 107bp in 2014, higher than they were in 2013 (63bp). This was a forward-looking move to hedge the downside risks associated with the macro-economy and to prepare for more aggressive write-offs.

Here's more from CCB International:

Interbank business recovers – bills down but TBRs up - Assets were up 2.3% QoQ after shrinking 6% QoQ in 3Q14 due to new interbank regulations introduced by the PBOC. In 2H14, the bank reduced its bills business but increased TBR business, which offered higher yields.

Clearly, risk appetite at China CITIC is still high. In the relatively looser monetary environment in 2015F, we expect the bank’s balance sheet growth to reach 18.3% (from 13.7% in 2014).

Challenges to watch: weak deposits and rising overdue loans - Deposits were up only 7.5% YoY because of shrinking personal time deposits (down 5.4% YoY), which have to compete against the popularity of internet money market funds and the scramble for deposits.

In our view, deposit gathering at China CITIC will be subdued in 2015F. The overdue loans ratio jumped from 1.83% in 2013 to 3.47% in 2014, implying NPL pressure is still intense.