Chongqing Rural Commercial Bank 1H14 loan growth surges 17.8% YoY

While NIM went above the consensus.

Chongqing Rural Commercial Bank posted stronger-than-expected revenue, as loan growth was 17.8% YoY in 1H14, higher than the consensus forecast of 15.7% but in line with Maybank Kim Eng’s.

According to a research note from Maybank Kim Eng, NIM was 3.37% in 2Q14, slightly above consensus (3.36%) as Chongqing Rural Commercial Bank shifted towards high-yield assets.

Net fees recovered to CNY242m in 1Q14, well above consensus (CNY182m) and Maybank Kim Eng’s forecast (CNY200m).

Key drivers were agency and wealth management fees, while Chongqing Rural Commercial Bank also recorded a trading gain on bonds of CNY206m in 1H14.

Maybank Kim Eng raises its net fees forecasts by CNY30m p.a. during 2014-15 and other non-interest income forecast by CNY50m for 2014.

Here’s more from Maybank Kim Eng:

Decline in new NPL formation. Credit costs surged to 0.85% in 1H14 (higher than consensus forecast of 0.55%).

However, CQRB tends to book higher credit costs in 2Q of each year. Besides, only 18bps of the credit costs in 1H14 was related to NPLs.

The remaining was due to a rise in collective loan impairment allowances. Its new NPL formation reduced from CNY343m in 2H13 to CNY275m in 1H14.

We believe market will not raise the credit costs forecast significantly. Our forecast is kept at 0.78% for 2014.

A one-off shed in CET1 CAR from 11.9% in Dec 2013 to 9.8% in Jun 2014. About half of this decline was due to the new rules of increasing the risk-weight of exposures to shadow bank assets.

We believe this will tighten the capital constraint of both China Minsheng Bank and China CITIC Bank as they have higher exposures to shadow bank assets and lower CET1 CAR than peers.