China Merchants Bank's third-quarter report continues to be stable and trending positively

China Merchants Bank (600036.SH) disclosed its third-quarter report on the evening of October 29, showing a continuation of its steady performance, maintaining a coordinated development trend of "quality, efficiency, scale, and structure." The total assets reached 11.65 trillion yuan, an increase of 5.68% from the end of the previous year, with total loans and advances of 6.76 trillion yuan, an increase of 3.84% from the end of the previous year. The non-performing loan ratio was 0.94%, a decrease of 0.01 percentage points from the end of the previous year. The core Tier 1 capital adequacy ratio under advanced regulations was 14.73%, an increase of 1.00 percentage point from the end of the previous year. The ROAA and ROAE were 1.33% and 15.38% respectively, with non-interest net income accounting for 37.76%.

This year, China Merchants Bank has been favored by the capital market. Wind data shows that as of the close of October 29, the A-share price of China Merchants Bank has increased by 47.11% year-to-date, with a PB ratio of 1.01, making it the only listed bank with a PB ratio above 1.

Highlighted Operational Management Capability

Financial data shows that China Merchants Bank has narrowed the decline in revenue and profits. In the first three quarters, it achieved operating income of 252.709 billion yuan and a net profit attributable to equity holders of 113.184 billion yuan, a year-on-year decrease of 2.91% and 0.62% respectively. However, the decline narrowed by 0.18 and 0.71 percentage points compared to the first half of the year. In the third quarter, China Merchants Bank's net profit attributable to equity holders was 38.441 billion yuan, an increase of 0.79% year-on-year, with the growth rate returning to positive.

At the mid-year performance communication meeting held on September 2, China Merchants Bank President Wang Liang stated that profit growth will not be achieved simply by reducing the provision coverage ratio. Enhancing operational management capability is more important, and China Merchants Bank will focus on creating a new model of high-quality development driven by "strict management and innovation."

In the current operating environment, stabilizing net interest margin performance tests the asset-liability management capabilities of commercial banks. According to statistics from the China Banking and Insurance Regulatory Commission, the net interest margin of commercial banks in China was 1.54% in the first half of the year, at a historical low. Zhongjin Company recently predicted in a research report that the net interest margin of listed banks will decrease by 1BP in the third quarter of 2024, continuing the downward trend. In the first three quarters, China Merchants Bank's net interest margin was 1.99%, maintaining a market-leading position. The bank achieved a year-on-year decrease of 3 basis points in the cost of interest-bearing liabilities, effectively controlling the cost on the liability side. Amid the trend of deposit regularization, China Merchants Bank's average daily balance of demand deposits accounted for 50.60% in the first three quarters, maintaining a leading position in the industry.

It is worth mentioning that China Merchants Bank adheres to "quality first," with prudent and sound risk management. The non-performing loan ratio has long been kept below 1%, with a decrease of 0.01 percentage points at the end of the third quarter compared to the end of the previous year. The non-performing loan ratio in the real estate industry decreased by 0.21 percentage points from the end of the previous year, while the non-performing loan ratio for retail loans increased slightly by 0.03 percentage points from the end of the previous year, but still remains at a leading level in the industry. Strengthening fine cost management has shown initial results, with business and management expenses at 74.747 billion yuan, a year-on-year decrease of 4.56%, and a cost-to-income ratio of 29.58%, a year-on-year decrease of 0.51 percentage points, achieving continuous cost reduction and efficiency improvement Retail AUM Increment has Exceeded Trillions

In the past two years, China Merchants Bank's retail business has been steadily advancing. As of the end of the third quarter, the number of retail customers of China Merchants Bank reached 206 million, an increase of 4.57% from the end of the previous year; the total assets under management (AUM) for retail customers reached 14.34 trillion yuan, an increase of over 1 trillion yuan from the end of the previous year, with a growth rate of 7.69%; the balance of retail loans was 3.57 trillion yuan, accounting for 52.88% of the total loans and advances.

China Merchants Bank's wealth management fee and commission income were 17.405 billion yuan, a year-on-year decrease of 27.63%, narrowing by 4.88 percentage points compared to the first half of the year. The bank is still digesting the impact of factors such as the reduction in insurance and public fund fees and the decrease in customer risk preferences, with agency insurance income and fund income decreasing by 54.56% and 26.47% respectively year-on-year. However, the income from selling wealth management products increased by 47.36% year-on-year, driven by the growth in scale and the optimization of product structure.

Despite the pressure on wealth management income, at the "2024 Wealth Partner Forum" held in Shanghai in July this year, China Merchants Bank announced that the buy-in fee for public fund sales would start at one-tenth. Wang Ying, Vice President of China Merchants Bank, once stated that this move is based on the principle of "customer-centric, creating value for customers". In times of poor returns, reducing customer transaction costs, although affecting the middle income, is digestible and bearable. This move is not only to save money for customers but also aims to transform its fund sales business from traditional traffic operation to scale operation, driving the bank to develop new capabilities from the perspective of customer needs, transitioning from a sales-oriented approach to an expert companion approach. This initiative has also triggered follow-ups from competitors in the industry.

China Merchants Bank continues to promote the TREE asset allocation system and strengthen the linkage between investment research, continuously enhancing its wealth management capabilities. According to public information, in terms of funds, China Merchants Bank's wealth management shelf has over 12,000 public funds, covering various categories such as active equity funds, index funds, bond funds, FOF funds, QDII, etc.; in terms of wealth management, it has deep cooperation with 19 bank wealth management subsidiaries, and the retail sales of wealth management products had exceeded 3.8 trillion yuan by mid-July, ranking at the forefront of the industry.

The structure of China Merchants Bank's retail AUM is more balanced, with a higher proportion of non-deposit AUM. Recently, customer investment confidence and enthusiasm have significantly recovered, indicating that the business advantages accumulated earlier are expected to support China Merchants Bank in seizing market opportunities at a faster pace. The strength of China Merchants Bank's wealth management is further highlighted. Public information shows that on October 25th, on the first day of the sale of the first batch of off-exchange CSI A500 index funds, the total subscription funds exceeded 20 billion yuan, with over 10 billion yuan coming from China Merchants Bank's fundraising channels, reflecting the strong advantage of China Merchants Bank's retail wealth management.

Policy Opportunities + Clear Advantages

Since late September, China's macroeconomic policies have been continuously strengthened, with a series of incremental policies in monetary, fiscal, industry, real estate, and capital markets, sending positive signals to the market and demonstrating the government's confidence in stabilizing the economy. For banks, policies related to real estate, equipment renewal, consumer goods replacement, and other areas are expected to improve the issue of insufficient effective credit demand. Innovative tools such as stock repurchase and increased holding loans bring new business opportunities, while the recovery of the capital market will promote the development of wealth management, asset management, and investment banking businesses The resolution of real estate and local debt risks ushers in an important opportunity.

With the economic recovery and positive expectations in the capital market, the valuation of listed banks is being restored, with China Merchants Bank leading the gains. The A-share price-to-book ratio has risen above 1, reflecting investors' accelerating confidence in China Merchants Bank. The Hong Kong Central Clearing Limited, representing the northbound capital flow, increased its holdings by 265 million shares compared to the end of the previous year.

From the perspective of policy opportunities, China Merchants Bank has obvious advantages in mortgage loans, wealth management, investment banking, and mergers and acquisitions financing, all of which are its core businesses. In terms of investment returns, China Merchants Bank has a high cash dividend payout ratio, stable asset growth, excellent asset quality, and long-term maintenance of internal capital.

In the long run, the market generally believes that in the context of the high-quality development transformation of the economy, the intensification of competition in the banking industry is inevitable. Which banks can stand out? CICC (China International Capital Corporation) indicates that more attention should be paid to a bank's comprehensive financial service capabilities, differentiated service innovation for segmented customer groups, clear business objectives, sound risk control culture, reasonable incentive systems, and digitalization. Banks leading in these areas of reform and transformation may increase their market share. China Merchants Bank has proposed to lead high-quality development by creating a value bank as a strategic goal, adhering to the operating philosophy of "quality first, benefit priority, moderate scale, and reasonable structure." Customer comprehensive services, hierarchical classification services, "human + digitalization," and the establishment of "Smart China Merchants Bank" are all key areas that the bank is actively promoting