Q4 Results: Citic Reports Improving Asset Quality and NIM Despite Market Challenges

China Citic Bank's 2022 results were slightly better than our expectations. Total revenue and net profits in 2022 grew 3.3% and 11.6% respectively from 2021. Growth in fourth-quarter revenue and preprovision operating profits were resilient at 3.3% and 1.5% respectively, flat from the level in the first three quarters and despite mounting industrywide challenges in the fourth quarter. We believe stronger-than-expected earnings growth was underpinned by two positive trends, including a quarter-on-quarter increase in net interest margin and improved credit quality outlooks as management noted the speed of bad debt formation has peaked thanks to its efforts of cleaning up the loan book during 2019 to 2022, and China’s policy easing. The bank’s NPL ratio and NPL formation rate both declined to a new low of 1.27% and 1.22% respectively since 2014. The NPL balance contracted 3.3% from 2021. In contrast to flat or declining provision coverage ratios of its peers in a challenging 2022, Citic reported a 20-percentage-point increase to 201% from 2021. The corporate NPL ratio improved 33 basis points to 1.72%, with NPL ratios of property and construction loans declining 55 and 107 basis points respectively from 2021.