Zhongtai Securities has released a research report indicating that BANK OF CHINA (03988) has demonstrated a significant rebound in both revenue and net profit growth. The bank's overseas operations continue to be a major contributor, while fee-based income provides positive support to overall revenue. Projected price-to-book (PB) ratios for 2026E, 2027E, and 2028E stand at 0.66X, 0.61X, and 0.57X respectively, while projected price-to-earnings (PE) ratios are 7.61X, 7.37X, and 7.22X. As a major state-owned bank, the company maintains stable overall operations, steady asset quality, and a significant advantage in its overseas business. The bank's valuation offers a high margin of safety, characterized by a high dividend yield and a low valuation. An "Overweight" rating is maintained.
Key points from the report are as follows:
Performance: In the first quarter of 2026, BANK OF CHINA's revenue increased by 5.9% year-on-year (compared to full-year 2025 growth of +1.7%), while net profit attributable to shareholders rose by 4.2% year-on-year (compared to full-year 2025 growth of +2.2%). Both revenue and net profit growth showed significant improvement, supported by ongoing contributions from overseas business and positive support from fee-based income. Net interest income for 1Q26 grew by 7.8% year-on-year (compared to a decline of 1.8% in 2025). The quarterly annualized net interest margin for 1Q26 decreased by 2 basis points sequentially and 2 basis points year-on-year to 1.24%. This was due to a 9 basis point sequential decline in the annualized yield on interest-earning assets to 2.65%, while the cost of interest-bearing liabilities also fell by 9 basis points sequentially to 1.56%.
Asset Side: Lending got off to a strong start. (1) Interest-earning assets grew 9.4% year-on-year in 1Q26 (same as the 9.4% growth in 2025), with loans up 8.2% year-on-year (compared to 8.7% in 2025). Corporate loans increased by 10.2% in 2025, bill financing surged 28.1%, while personal loans remained flat. (2) Looking at the 2025 credit structure, corporate loans accounted for 100% of new loans, with retail loans contributing 0%. By sector, government-related financing (62.2%), manufacturing (26.6%), and technology-related sectors (26.1%) were the top three contributors. Government-related financing and manufacturing grew by 13.5% and 16.3% year-on-year respectively, maintaining high growth rates. In terms of outstanding loan composition, the structure across segments saw little year-on-year change, with the top three being government-related financing (41.7%), personal mortgages (19.5%), and manufacturing (15.1%).
Liability Side: Liabilities grew steadily. (1) Interest-bearing liabilities increased 10.0% year-on-year in 1Q26 (compared to 4.2% growth in 2025), while deposits grew 6.1% (compared to 8.2% in 2025). (2) In 2025, corporate demand deposits, personal demand deposits, corporate time deposits, and personal time deposits grew by 2.7%, 6.3%, 9.4%, and 9.9% year-on-year, respectively. The proportion of demand deposits was 38.5%, down 2.6 percentage points year-on-year.
Net non-interest income for 1Q26 increased by 0.9% (compared to 13.6% growth in 2025), primarily dragged down by other non-interest income components. 1) Net fee income grew 5.6% in 1Q26 (compared to 7.4% in 2025), indicating steady growth. 2) Net other non-interest income declined by 6.1% in 1Q26 (compared to a 21.9% increase in 2025).
Asset Quality: Key indicators continued to improve, with the non-performing loan (NPL) ratio, NPL formation ratio, and overdue ratio all showing positive trends; provisions increased. 1) Both the NPL ratio and NPL formation ratio maintained a downward trend. The NPL ratio was 1.21% in 1Q26, down 2 basis points sequentially and 3 basis points year-on-year. The NPL formation ratio was 0.49% in 2025, down 2 basis points year-on-year; the 1Q26 NPL formation ratio was 0.36%, down 15 basis points year-on-year. The ratio of special-mention loans in 2025 increased by 3 basis points sequentially to 1.47%. 2) The overdue loan ratio in 2025 decreased by 5 basis points compared to the first half of 2025, reaching 1.26%. 3) The provision coverage ratio continued to improve sequentially, rising by 2.8 percentage points to 203.17%; the loan provision ratio was 2.47%, unchanged from the previous quarter.
Sector-Specific NPL Ratios: By the end of 2025, retail NPL ratios showed improvement, driven by mortgages. The calculated corporate NPL ratio was 1.24% at the end of 2025, up 5 basis points sequentially. Within this, the manufacturing NPL ratio rose 1 basis point to 0.80%, while the real estate NPL ratio increased significantly by 51 basis points to 3.99%. The calculated retail NPL ratio (including business loans) decreased by 5 basis points sequentially to 0.97%, primarily due to a 13 basis point drop in the mortgage NPL ratio to 0.52%.
Sector-Specific NPL Structure: As of the end of 2025, the corporate-to-retail NPL distribution was 60:23, with the retail share down 1.6 percentage points compared to the first half of 2025. The top three sectors contributing to corporate NPLs were real estate (21.01%), leasing and business services (16.46%), and manufacturing (9.84%).
Capital: The core tier 1 capital adequacy ratio was 12.18% in 1Q26, down 35 basis points sequentially but up 36 basis points year-on-year.
Risk warnings include potential economic downturn exceeding expectations, the company's operational performance falling short of forecasts, and delays in updating research report information.
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