From the newly disclosed third-quarter reports, joint-stock banks as a whole posted weaker performance growth than the state-owned major banks, while internal divergence intensified.
In the first three quarters, nine A-share joint-stock banks together achieved operating revenue of 1.16 trillion yuan, up 3.7% year on year, while combined net profit attributable to shareholders reached 391.333 billion yuan, down 2.8% year on year.
This stands in contrast with the six major banks. The state-owned major banks saw net profit growth of 6.1% during the same period, while joint-stock banks as a whole recorded negative growth.
What is more noteworthy is the internal divergence: revenue growth ranged from Huaxia Bank (ASX: 600015) at +18.50% to China Zheshang Bank (ASX: 601916) at +0.14%, while net profit growth ranged from Shanghai Pudong Development Bank (ASX: 600000) at +4.52% to China Everbright Bank (ASX: 601818) at -23.63%.
Who Is Truly Growing and Who Is Repaying Old Debts
Judging from the third-quarter reports, the nine A-share joint-stock banks are following three different playbooks.
The first is making money through customer operations. China Merchants Bank (ASX: 600036) is the only bank among them with positive growth in all three areas of revenue, profit, and intermediary income, while maintaining ROE above 13%: revenue rose 5.34%, net profit rose 2.38%, and net fee and commission income reached 58.614 billion yuan, up 4.29%, of which wealth management fees were 23.504 billion yuan, up 13.71%, and agency fund income surged 31.63%.
The second is relying on investment gains to fill the gap. Shanghai Pudong Development Bank (ASX: 600000) reported revenue growth of 4.42% and net profit growth of 4.52%, which appears steady, but a closer look shows investment gains of 32.657 billion yuan, up 73% year on year, while fair value changes during the same period were -11.508 billion yuan, compared with +872 million yuan a year earlier. Between that increase and decrease, the bank relied on realizing unrealized gains. China CITIC Bank (ASX: 601998) and Ping An Bank (ASX: 000001) also belong to this category, with the former's non-interest income rising 7.02% and the latter's non-interest income share rising to 35.25%.
The third is paying for the past. China Everbright Bank (ASX: 601818), China Minsheng Bank (ASX: 600016), and Huaxia Bank (ASX: 600015) saw net profit fall 23.63%, 14.78%, and 18.02%, respectively, with the three together earning 67.335 billion yuan, about 16.2 billion yuan less than a year earlier, a decline of 19.4%. The three shared one common move: substantially increasing provisions. Huaxia Bank (ASX: 600015) recorded credit impairment losses of 33.963 billion yuan, surging 86.6% year on year; China Everbright Bank (ASX: 601818) recorded 31.662 billion yuan, up 68.08%; and China Minsheng Bank (ASX: 600016) recorded 47.594 billion yuan, up 18.5%, with its announcement explicitly stating that it would "continue to step up efforts to dispose of non-performing assets."
Interest Margins Rebounded at Three Banks as Huaxia Bank's Net Interest Income Rose More Than 10%
A bank's income has two legs: net interest income and non-interest income. In terms of interest margins, among the seven banks that disclosed net interest margins, three rebounded while four continued to decline. Huaxia Bank (ASX: 600015) improved its interest margin and lifted net interest income by 10.66%; Industrial Bank (ASX: 601166) and China Zheshang Bank (ASX: 601916) each saw interest margins fall 12 basis points, with net interest income down 2.19% and 2.95%, respectively. China Merchants Bank (ASX: 600036) saw its interest margin fall 5 basis points while net interest income still rose 5.83%; China Minsheng Bank (ASX: 600016) saw its interest margin rise 5 basis points while net interest income rose 4.95%.
Looking at intermediary income, the gap is even more obvious. China Merchants Bank (ASX: 600036) posted net fee and commission income of 58.614 billion yuan in the first three quarters, up 4.29%; Industrial Bank (ASX: 601166) recorded 20.921 billion yuan, up 4.18%; China Zheshang Bank (ASX: 601916) recorded 3.780 billion yuan, up 22.5%; Ping An Bank (ASX: 000001) recorded 18.688 billion yuan, roughly flat; China CITIC Bank (ASX: 601998) recorded 25.348 billion yuan, down slightly by 0.57%; China Minsheng Bank (ASX: 600016) recorded 13.972 billion yuan, down 2.89%; Huaxia Bank (ASX: 600015) recorded 4.525 billion yuan, down 3.60%; Shanghai Pudong Development Bank (ASX: 600000) recorded 16.957 billion yuan, down 4.01%; and China Everbright Bank (ASX: 601818) recorded 13.876 billion yuan, down 10.49%. China Merchants Bank (ASX: 600036) is contributing incremental gains across wealth management, custody, and settlement, while intermediary income at most banks is still being dragged down by falling fee rates and weak agency sales. One detail in China Merchants Bank's (ASX: 600036) earnings report illustrates the industry's current situation well: agency fund income rose 31.63%, but card fees fell 10.34%.
Non-Performing Loan Ratios Were Generally Stable, With Three Banks' Provision Coverage Below 150%
Non-performing loan ratios were generally stable, with eight of the nine banks flat or lower, and only China Everbright Bank (ASX: 601818) rising 0.27 percentage points to 1.54%. China Merchants Bank's (ASX: 600036) non-performing loan ratio was below 1%.
However, provision coverage ratios diverged markedly. The regulatory requirement for banks' provision coverage ratio is in the 120% to 150% range, and currently China Everbright Bank (ASX: 601818) and China Minsheng Bank (ASX: 600016) are below 150%. By contrast, leading banks represented by China Merchants Bank (ASX: 600036) have provision coverage as high as 389.39%, nearly three times the regulatory line.
The thickness of provisions determines future profit flexibility. China Merchants Bank (ASX: 600036), Industrial Bank (ASX: 601166), and Ping An Bank (ASX: 000001) all have provision coverage above 210%, leaving room to release provisions; while banks whose provisions are at the regulatory line have only two options once non-performing loans continue to rise: keep suppressing profit, or shrink scale.
In addition, judging from the third-quarter reports, retail loans are contracting. China Minsheng Bank (ASX: 600016) had personal loan balances of 1.582289 trillion yuan, down 5.75% from the end of last year; Industrial Bank (ASX: 601166) had personal loans of 1.821422 trillion yuan, down 5.30%; and Ping An Bank (ASX: 000001) had personal loans of 1.722454 trillion yuan, down 0.3%. Corporate loans and bills are filling the gap: China Minsheng Bank's (ASX: 600016) corporate loans rose 6.79%, and Industrial Bank's (ASX: 601166) corporate loans rose 10.05%. Weak retail credit demand is spreading from the major banks to the joint-stock banks.
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