China Minsheng Bank's net profit up 20% to RMB11b in 1Q13

But asset growth decelerated to 2.7%.

According to Barclays, Minsheng reported 1Q13 net profit of RMB11bn, up 20% y/y, 1.4% below the analyst'sforecast of RMB 11.2bn. 

Here's more from Barclays:

Slowdown of interbank business and asset expansion: After tremendous asset growth in 2012 (+44% y/y) and 4Q12 (+14.8% q/q), the bank’s asset growth in 1Q13 decelerated to only 2.7% q/q. In particular, the bank’s reverse repos (the growth engine in 2012) almost had no growth (up 0.7% in 1Q13 vs. 62% in 4Q12) to RMB 738bn.

However, interbank business remained high at 32% of assets and 28% of liabilities. Total loan growth was also slow at 3.7% q/q (vs. banking system loan growth of 4.7% in 1Q13). One positive was strong growth in MSE lending (up 11.8% in 1Q13).

On the liability side, total customer deposits rose 8.9% q/q to RMB 2,098bn, driven by 15% q/q growth on personal deposits, triggering the loan-to-deposit ratio contraction to 68.5% at end-March 2013 from 71.9% at end-2012, under our calculation.

However, its interbank related liabilities, including deposits and placements from banks and other financial institutions, reduced to RMB 684bn, -12% q/q in 1Q13 (vs +72% in 4Q12). Total liabilities slightly increased by 2.4% to RMB 3,116bn.

We believe that the slower balance growth was a result of capital constraint.

Decline in capital ratios due to new capital regulation: Under the old capital standard, the bank’s Tier 1 ratio and CAR increased by 1bps and 92bps q/q to 8.14% and 11.67%, respectively, at end-March 2013 due to RMB 20bn A-share convertible bonds (CBs) issued on 15 March 2013. However, under the new capital calculation methodology, its Tier 1 ratio/CAR were reduced by 32bps/88bps q/q to 7.81%/9.87%, according to the bank’s 1Q13 results statement.

Minsheng’s capital ratios are the lowest among its bank peers. Going forward, even with the CB conversion, the bank may still need to replenish its core capital as its growth model is more capital-consuming that those of its peers.

Sequential NIM compression in 1Q13: The bank said that its NIM for 1Q13 was down 15bps q/q to 2.45%, compared with 3.04% for 9M12 and 2.6% for 4Q12. Now, its NIM is the lowest among its China bank peers despite its focus on small and micro-enterprise loans.

We believe the NIM compression in 1Q13 was mainly due to 1) the increase in expensive wealth management products related personal deposits and 2) the 50bps repricing of its mortgage book on 1 January. As the interbank business almost had no growth, we don’t believe it was main contributor to its NIM contraction.

Fee income remained strong: Net fee income grew significantly by 40% y/y or 49% q/q in 1Q13. The bank did not disclose the breakdown.

Improved cost to income ratio: The bank’s cost to income ratio contracted by 2.6ppt y/y or 10.2ppt q/q to 33.8% as of end-1Q13. We believe it was mainly due to stronger top-line income growth (15% y/y growth on operating income vs 7% y/y growth on expenses).

Stable asset quality, but higher credit charge: Although total NPLs increased by 3.8% q/q to RMB 10.9bn, the bank’s NPL ratio stood at 0.76%. For 1Q13, Minsheng increased its credit charge significantly to 1.14%, up 5bps y/y or 48bps q/q.

The bank may aim to increase its reserve/loan ratio to meet the 2.5% regulatory requirement. Its coverage ratio increased by 10ppt q/q to 325%, and its reserve/total loans increased by 8bps 2.47% at end-March 2013.