Citi has released a research report stating that Bank of China (ASX: 03988) delivered better-than-expected pre-provision operating profit in the third quarter, with net interest margin and fee income showing resilience. The bank maintains a "Buy" rating with a target price of HK$6.58.
Bank of China reported that for the first nine months of 2026, pre-provision operating profit rose 11.6% year-on-year to RMB 341 billion, while net profit increased 5.5% year-on-year to RMB 187.5 billion, equivalent to 73% of full-year 2026 market consensus. In the third quarter alone, pre-provision operating profit grew 15.6% year-on-year to RMB 110.6 billion, outpacing the 12.3% year-on-year growth recorded in the second quarter, primarily driven by improved cost efficiency, though trading gains came under pressure. Third-quarter net profit rose 6.4% year-on-year to RMB 63.9 billion, growing at a slower pace than pre-provision operating profit, mainly due to a higher effective tax rate.
The report highlighted several positive factors. The third-quarter cost-to-income ratio fell 6.4 percentage points year-on-year to 34.8%. Revenue rose 4.3% year-on-year, while operating expenses declined 11.9% year-on-year. Fee income proved resilient, dipping 2% year-on-year in the third quarter and accounting for 10.9% of revenue. On asset quality, the non-performing loan ratio edged down 1 basis point quarter-on-quarter to 1.22%, and the third-quarter credit cost stood at 0.45%.
On the negative side, loan growth slowed, with third-quarter loans rising 1.3% quarter-on-quarter and 7.1% year-on-year. Net interest margin fell 1 basis point quarter-on-quarter to 1.27%. Third-quarter trading gains dropped 30.5% year-on-year. The bank views the third-quarter earnings as broadly in line with expectations. Despite Bank of China holding the lowest stake in Changxin Technology (688825.SH) among major banks and benefiting the least from mark-to-market gains tied to the rise in Changxin Technology's share price, it still recorded a notable acceleration in pre-provision operating profit growth, supported by core businesses such as net interest margin and fee income, which came as a positive surprise.
Looking ahead, Citi expects Bank of China to benefit from sustained Chinese export momentum and the U.S. interest rate hike cycle, given its strong overseas and international business network.
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