Bank of Ningbo Earnings: Revenue Growth Remains Solid; Reduce FVE on Potentially Higher Loan Risks

We reduced our fair value estimate for Bank of Ningbo, or BONB, to CNY 27 per share from CNY 32 to reflect a more challenging credit quality outlook and fee income pressure. The pickup in fourth-quarter net interest income growth is a surprise, driven by strong loan growth in the past quarter that contributed nearly 18% of 2023 new loans. The 1-basis-point sequential decline in net interest margin, or NIM, to 1.88% also beats our expectation. The above-peer growth was achieved by BONB’s rapid loan expansion underpinned by relatively high-risk categories, including loans to property developers, retail consumption, and business service sectors, which contributed 65% of 2023 new loans. In particular, its consumer finance subsidiary contributed 17% of BONB’s 2023 new loans. As consumer finance companies typically serve smaller value borrowings for subprime borrowers, we are concerned that its increased exposure to consumption and real estate loans will weigh on its credit quality. Thus, we increased credit costs assumptions for the next three years by 8 to 12 basis points to reflect such risks. Consequently, we cut 2024-26 earnings forecasts by 5%-11%.