Zhongjin: Large fluctuations in bond market interest rates lead to a decrease in investment returns. Bank profits in the first quarter experienced negative growth.
In the first quarter, bank profits experienced negative growth, with the main factor beyond expectations being a significant decrease in investment income due to large fluctuations in bond market interest rates. However, it is also worth noting the weak demand for credit, pressure on interest spreads, and the increasing credit risk of retail loans.
CICC released a research report stating that in the first quarter, bank profits declined, mainly due to the significant decrease in investment income caused by the large fluctuation in bond market interest rates. However, concerns such as weak credit demand, interest rate pressure, and increasing credit risk for retail loans should also be noted. It is expected that bank profits will still turn positive for the year, but the key factors depend on the macroeconomic policy effects of stabilizing domestic demand and foreign trade, as well as protecting interest spreads through measures such as reserve requirement cuts and reducing re-lending rates.
In terms of bank investments, it is recommended to continue monitoring the implementation effects of economic stimulus policies. Bank stocks still have attractiveness due to dividends, but fundamental pressures and factors such as dividend distribution may bring about short-term stock price fluctuations. It is advised for investors to strategically allocate bank stocks with higher dividends and stable fundamentals.
CICC's main points are as follows:
In the first quarter of 2025, the net profit growth rate of listed banks decreased by 1.1% year-on-year, turning from a +2.4% in 2024 to negative growth, slightly lower than market expectations. CICC believes the main reasons are as follows:
The central bank did not cut interest rates, but interest rate pressure still exists: In the first quarter, the simulated net interest margin decreased by 5bp compared to 4Q24 to 1.33%, and by 10bp compared to 2024, resulting in a 2.0% decrease in net interest income growth compared to the same period last year. Although the central bank did not lower interest rates in the first quarter of this year, interest rates are still decreasing, mainly due to three reasons: firstly, repricing of loans and bonds led to a decrease in asset yield.
Secondly, demand for credit was weak in the first quarter, with short-term loans and bill financing at lower interest rates growing faster than medium and long-term loans to enterprises and personal loans. In an environment of excess liquidity, the interest rates for new corporate loans decreased by 13bp in the first three months, leading to lower new asset yields. Low consumer and enterprise investment tendencies and higher savings tendencies resulted in fixed-term deposit growth surpassing current deposits. Loss of interbank deposits for banks led to sticky liabilities costs through means of replenishing liquidity, such as CDs and fixed-term deposits.
Bond market volatility dragging down other non-interest income: Rising bond market interest rates led to losses in fair value of bank bonds, causing a 3.2% decrease in other non-interest income compared to the same period the previous year. In a context of weak wealth management income and cost reduction incentives, fee income decreased by 0.7% year-on-year. With negative growth in net interest income, fee income, and other non-interest income, revenue growth decreased by 1.7% year-on-year, sliding 1.8 percentage points compared to 2024's +0.1% growth.
Pressure on asset quality of personal loans: Impairment losses in the first quarter decreased by 2.4% year-on-year, narrowing from the -6.0% in 2024, contributing less to net profit due to increasing provisions made for rising risk in personal loans. Although the industry's overall non-performing loan rate is declining, forward-looking delinquency rates have slightly increased, indicating potential future pressures on generating non-performing assets; the main non-performing pressures come from the retail sector, with a non-performing loan rate of 1.24% for listed banks at the end of 2024, up 8bp from June 2024.
Risk Factors: The impact of tariffs on asset quality, real estate, and urban investment debt risks.
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