Jiangsu and Zhejiang, as economically prosperous regions in China, serve as fertile ground for nurturing high-quality city commercial banks. Among them, Zhejiang stands out with its "Three Zhejiang Gems"—three listed banks each boasting assets exceeding one trillion yuan.
These city commercial banks, deeply rooted in thriving economic hubs, leverage local economic dividends to secure projects, often establishing solid foundations for growth. For instance, Bank of Ningbo and Bank of Hangzhou have long ranked among the top two in terms of growth potential among city commercial banks.
However, comparing these two leading banks reveals that while a strong regional foundation ensures a high developmental floor, building differentiated business advantages can significantly raise the ceiling.
This article presents the following perspectives: 1. **Bank of Hangzhou needs to strengthen its retail business.** The bank’s corporate business focuses on local government-backed projects, contributing to industry-leading risk performance and growth. However, its heavy reliance on infrastructure also results in a relatively low net interest margin. A breakthrough in retail banking could unlock greater potential. 2. **Bank of Hangzhou has favorable external conditions for retail and intermediary businesses.** Hangzhou’s vibrant economy, high resident income levels, and widespread financial awareness provide a solid market foundation for wealth management and related intermediary services.
### **01** #### **A Top Performer Among City Commercial Banks** Among A-share-listed city commercial banks, Bank of Hangzhou has consistently maintained strong growth. Over the past eight years, its growth rate has been second only to Bank of Ningbo within Zhejiang and ahead of other leading peers.
From 2016 to 2024, Bank of Hangzhou’s revenue grew at a compound annual rate of 13.7%, slightly below Bank of Ningbo’s 13.8% but higher than Chengdu Bank (13.05%), Bank of Changsha (12.6%), and Bank of Jiangsu (12.5%).
In Q3 2024, while financial investment volatility temporarily slowed its growth relative to peers, its stable net interest income still rose 10% YoY—far outperforming the industry average (-0.6%).
A key driver is the bank’s sustained expansion of interest-earning assets. Amid weak industry-wide credit demand, Bank of Hangzhou has benefited from Hangzhou’s robust economic momentum, including infrastructure boosts from hosting events like the Asian Games and G20 Summit. Its interest-earning assets grew 13.8% YoY in Q3.
The bank’s strong local government project exposure—with over 60% of corporate loans in sectors like utilities, public facilities, and leasing—supports both growth and asset quality. Its non-performing loan (NPL) ratio stood at 0.76% in Q3, among the lowest in the sector. Notably, loans in water conservancy and public facilities have reported zero NPLs for three consecutive years.
### **02** #### **Untapped Potential in Retail Banking** Despite its leading position, Bank of Hangzhou lags behind Bank of Ningbo in retail banking.
While Bank of Ningbo’s assets are 1.48x larger (¥3.1T vs. ¥2.1T in 2024), its revenue gap is even wider (¥666.3B vs. ¥383.8B), reflecting lower asset efficiency. Bank of Hangzhou’s net interest margin (1.35%) trails Bank of Ningbo’s (1.76%), partly due to differing loan structures.
Bank of Ningbo, often dubbed the "mini China Merchants Bank," derives 32% of its loans from retail, with high-yield consumer loans dominating (65%+ of retail loans). In contrast, Bank of Hangzhou’s retail loans (~30% of total) are skewed toward mortgages and business loans, with consumer loans at just ~20%.
While its conservative approach ensures superior risk metrics, boosting higher-margin retail segments like consumer lending could enhance profitability. Additionally, Hangzhou’s affluent, financially savvy population offers a ripe market for wealth management and investment banking—areas where the bank has begun gaining traction (8.9% YoY growth in investment banking fees in H1).
### **03** #### **Why Are Insurers Buying In?** Traditionally, insurers favored China’s "Big Four" banks and China Merchants Bank. Recently, however, city commercial banks like Bank of Hangzhou have attracted insurer interest, with New China Life becoming its fourth-largest shareholder.
Insurers are drawn to the sector’s attractive dividend yields (13 of 20 city commercial banks offer over 4%) and growth (4.7% YoY revenue growth in Q3 vs. 0.7% industry average). Yet, banking’s "profits first, risks later" nature means asset quality remains critical.
City commercial banks generally have looser NPL recognition standards (140% overdue/NPL ratio vs. 117% industry average) and higher net NPL formation rates (0.94% in Q3 vs. 0.65% industry average). Only top performers combining growth and low NPLs—like Bank of Hangzhou—offer compelling stability.
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