2Q13: Continued strong interest income
BOC beat our forecast solidly on the back of a remarkably-strong net interest income. Asset quality indicators were somewhat mixed, but overall we think that the bank has delivered a solid quarter.
2Q13 net profit of Rmb40.9bn (+17.5% yoy / +2.7% qoq) was 6.7% above our and 7% above consensus estimates driven by stronger-than-expected interest income and lower-than-expected loan impairment charges. 1H13 results represent 58% of our full-year forecast. We raise our FY13 EPS by 4.1% for higher NIM assumptions. We reiterate our HK$3.22 GGM-derived target price and Neutral rating.
Strong interest income
NII advanced by a remarkably strong 5.0% qoq on the back of a 1.5% qoq loan growth, stable deposits, and a surprisingly solid NIM at 2.24% (up 2bp qoq). BOC has shown the most stable NIM in the sector for several quarters in a row, partly due to the benefits of its large overseas presence. Looking ahead, we think that BOC will be a prime beneficiary of higher US rates by virtue of higher yields for its large international business.
In line with other big banks, BOC showed a 13.4% qoq decline in interbank assets. We think this reflects its response to the interbank liquidity squeeze in June, when we think BOC, together with other large banks, took a cautious view of things and withdrew funding from the interbank market.
Mixed asset quality
Asset quality trends were mixed. Impaired loans rose by 4.5% qoq, but strong loan growth over the quarter ensured that the NPL ratio increased by a modest 3bp qoq to 0.93%. Special mention loans declined 8.4% hoh, but at the same time, past due loans rose 21.4% hoh. BOC ran down its coverage somewhat over the quarter to 239% from 244% prior, but remains relatively well provisioned with provisions to loans at 2.23%. Loan impairment charges amounted to 30bp vs. 47bp in the prior quarter.
Publish date: 29/08/13