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Analysis EO
Nov 10, 2020 12:01 am ·

2020 3Q Results: Banking Industry Meets Expectations

By end of October, all A-share listed banks released their third quarter financial results. These show that: ►...profitability has been recovering with the rebounds of the net income growths.  ►Most of the banks achieved positive asset growth during the nine-month period. ►The industry is still suffering from the consequences of the pandemic, with an increasing non-performing loan ratio, but several strong performers also exist.  ►The operations seem good as more retail clients started using banking services.  Financials: Rebounding after the downturn Actively fighting with the aftermath of the COVID-19 pandemic, banks in China are in a recovery period, with profitability significantly improved. Six state-owned banks, representing the trend of the entire industry, posted encouraging financial results during the third quarter of 2020, narrowing the negative net income growth and posting positive revenue increase. Among all the 51 public banks, 33 saw revenue numbers rise, with four of them surpassing 20%.  China Merchants Bank, one of the largest city commercial banks in China, reported a 10.95% revenue increase in the retail business, took up 58.04% of the total figure. The net interest margin (NIM) rose month-over-month by 9 bps to 2.61% during the third quarter, led by the increased percentage of the high-return assets because of the recovery growth. The stricter cost control also contributed to better financials by improving the deposit structure. In the nine-month period, the non-interest income also ran up by 3.96%, took up 34.3% of the total revenue.  Ping An Bank, a rising star in China's banking industry, posted a 13.2% growth in revenue during the first three quarters of 2020. Even though it significantly raised the standard for recognizing the non-performing loan and impairment losses, which caused a 5.2% decrease in the net income to be more conservative, the figure also narrowed from the first half of the year. The operating income before the recognition reported a 16.2% raise, and the non-interest net income ran up 12.9%, led by the fund and trust business. China Minsheng Bank reported revenue of CNY 143.32 billion and NIM 2.14% with the improvement of 7.66% and 6 bps, respectively. The cost ratio was controlled by 0.59% down.  The common increase in the impairment losses among the entire banking industry is expected to go down to push back the profitability, as the pandemic fades along with the state's fiscal income support.  Assets: Increasing scale with improving quality All of the 51 public banks reported expansions in asset scale, with 14 of the figures entered the double-digit territory. Most of them clustered in the region that has at least 8.4% growth during the nine-month period in 2020 and a positive increase in the third quarter.  Among them, Ping An Bank led the industry in the single quarter from June to September, while China Construction Bank represents the top level of the state-owned banks with an overall highest growth from January to September.  The expanding asset scale, which mainly led by the increasing loan outstanding, also pushed their non-performing loan (NPL) up. Though banks are still suffering from the credit issue caused by the pandemic, things are getting better. City commercial banks performed better than the state-owned ones, with several of them controlled the NPL ratio down.  Among them, Ping An Bank improved the NPL ratio by 0.33%, leading the entire industry. Its NPL balance also went down by 11% compared to the end of 2019.  China Merchants Bank also achieved an improvement on low-quality loans, with the NPL ratio by 0.04%, the balance of loans past due decreased by 0.75%.  China Minsheng Bank experienced some trouble in 2020. Not only reflected as the shrinking asset scale, but its asset quality is also getting worse with the NPL ratio ran up by 0.27%, which is considered the top-level among all public banks. In general, we can see the banking industry in China has been gradually recovering from the downturn. Operation: decreasing unbanked population  With disposable income rising in China, more of the population has been using banking services, especially for private banking and high-end services. It can be seen reflected in the operating results from two retail giants, China Merchants Bank (CMB) and Ping An Bank (PAB).  For CMB, the pioneer of the retail banking service provider, had its individual clients increased 7.65% in the nine-month period, among which the high-end clients, named 'Golden Sunflower' (Chinese: 金葵花), with daily investment assets over CNY 500,000 ran up by 13.80%. The asset under management (AUM) of Golden Sunflower customers rose by 16.40%, surpassed the growth of the number of clients, marks a per capita incremental expenditure on banking services. The AUM of its private bank also went up by 19.15%.  For PAB, the year 2020 is the inception of its new operation strategy, to further deploy in the retail business, and to continue to increase risk management, and build a banking ecosystem. The total AUM grew by 25.5% by September 30 compared to the end of 2019. The client base in the private banking sector reached a growth of 26.3% in the nine-month period, and the AUM in the sector surged by 43%. In the future, it aims to reach CNY 2 trillion on the AUM of the private bank in two years. The Bottom  To sum up, some banks have indeed recovered fast from the adverse impacts of the pandemic, but in general, the performance of the banking industry is keeping up with market expectations.  

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Analysis EO
Nov 4, 2020 09:05 am ·

3Q Result: Solid Growth in the Entire Ping An Ecosystem

►The transformation in the life and health insurance sector hasn’t yet generated great value. ►The property insurance business is on the right track in terms of recovering from the pandemic. ►Ping An Bank's operation results and set quality have been improving. ►The technology sector played a blinder with world-top patent applications and fintech offsprings went public.  Financial performances during the latest quarter of Ping An ecosystem have been released. As it thinks there are certain items experiencing large fluctuations in short term, Ping An focuses more on the operating income. During the nine-month period, the figure ran up 4.5% even under the pandemic. The retail customer amount increased by 7% compared to the end of 2019, and 2.5% year-over-year in the third quarter. The financing amount and insurance premium scale for business clients both surged over 100% in the three months.  As a financial conglomerate originating from the insurance business, life and health insurance contributed most to the improvement in operating income. Due to the increasing cost ratio, property insurance has suffered a loss.  Insurance sector: Overall good but the transformation is still ongoing In the third quarter, the life and health insurance sector achieved a 9.2% increase in the operating income, while the net income declined by 25% because of the pandemic, which speeded up the transformation on the sector, from a positive perspective. Ping An upgraded the sector from five ways including channels, products, operation, model, and culture, to form competitiveness from a long-term perspective. The online operation has been expanding as expected but the offline channel still remains inactive that caused the new business valued to 27.1% down. Many experts in the industry believe that the new operation will bring something in 2021.  The property insurance reported an 11.5% rise in premium amounts even under the pandemic. However, due to the increasing competition in the market, the comprehensive cost ratio ran up 1% to 99.1% at the end of September, the operating profit in the sector drop by 22.4%, according to the company. Ping An will continue to impose stricter risk management and clients controlling to solve the problem.  The investment portfolio in the insurance has been improving as the scale expanded 10.3% during the nine-month period and the annual investment return recorded 5.2%.  Ping An Bank: Strengthening financials and improving asset quality Ping An Bank, one of the star banking stocks in China's A-share market, gradually recovered from the pandemic. During the first three quarters, the revenue grew up by 13.2% year-over-year to CNY 116.56 billion.  By end of September, the asset under management (AUM) surged 25.5% and the number of retail clients ran up 6.8%, compared to the inception of 2020. The coverage ratio, which represents the capability for banks in shielding against credit risks, enhanced by 35.17% to 218.29%.  It identifies the risks and economic trends in a predictive way, increases the standards for impairment losses on the credit and lending assets to ensure a securer operation, which partially negatively affected its operating profit. The credit and other asset impairment losses were exalted 32.4% and 55.6%, respectively.  Adversely affected by the COVID-19, the growth of Ping An Bank's net income had been decreasing for quarters, but the figures are narrowed. Based on the encouraging trend and the regurgitation from the high impairment losses wrote down, the profitability growth for the entire 2020 is expected to turn positive.  However, it is worth mentioning that the operating income rose 16.2% before the impairment losses, and the net income reached a historical high in the single quarter with a year-over-year increase of 6.11%. Technology: a young but rapidly growing sector  Technology has now become one of the main development goals for Ping An ecosystem. The revenue from the technology sector reported 8.3% higher during the first three quarters compared to the same period last year. Fintech and health-tech constitute two primary segments. Once the top four unicorns worldwide and the first-born fintech company for Ping An, Lufax is indeed the apple of the latter's eye, and has become one of the largest personal financial platforms in China now. By end of September 2020, the AUM rose by 9.1% and the loan balance ran up by 15.9% from the inception of the year. The loan overdue rates also had gone back down to where they were before the pandemic. On October 30 of 2020, Lufax successfully launched New York Stock Exchange under the ticker of 'LU', became the second US-listed Ping An-incubated fintech firm, after OneConnect (OCFT:NYSE). OneConnect, the other fintech arm for Ping An ecosystem, serves as the main technology output for financial companies. Its services have covered over 3700 financial institutions in 18 countries and regions. During the third quarter of 2020, the company reported revenue of CNY 881 million with an increase of 50.6%, and a 10.62% improvement on the gross profit margin, from 38.6% to 42.7%. By end of September, the number of technology-related patent applications reached 28037 with the fintech-related ones ranked first globally in two consecutive years.  In the health-tech field, Ping An Good Doctor (01833:HK) has applied AI technologies to improve services. It hasn't yet released the financial result for the third quarter of 2020. Ping An HealthKonnect, a technology company provides comprehensive health insurance-related solutions for the medical insurance bureau and insurance firms. By end of September, it has secured the bids in nine provinces in medical insurance platforms construction.  The bottom After decades of development, Ping An Group is now one of the largest financial conglomerate in China that operates in almost all fields in the financial service industry, and also actively exploring more fields out of it. Even it has a large exposure to the COVID-19 pandemic, Ping An's performances showed its power. We are looking forward to seeing its final grade for the entire 2020. 

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