Rare decline, China Merchants Bank delivers its worst semi-annual report in 14 years

On August 29, China Merchants Bank released its 2024 interim report. During the reporting period, the bank achieved operating income of 172.945 billion yuan, a year-on-year decrease of 3.09%; and realized a net profit attributable to equity holders of 74.743 billion yuan, a year-on-year decrease of 1.33%.

As of the end of June, China Merchants Bank's total assets were 11.57 trillion yuan, an increase of 4.95% from the end of the previous year; total loans and advances amounted to 6.75 trillion yuan, an increase of 3.67% from the end of the previous year; and total customer deposits were 8.66 trillion yuan, an increase of 6.22% from the end of the previous year.

Looking at the performance by quarter, in the second quarter, China Merchants Bank achieved a slight increase in revenue compared to the first quarter, but net profit decreased by 3.71% compared to the previous quarter, dropping to 36.666 billion yuan.

It is worth noting that the simultaneous decline in revenue and net profit in China Merchants Bank's semi-annual report is very rare. The last time China Merchants Bank's semi-annual report showed a double decline was in 2009.

In the overall environment of continuous decline in net interest margin for banks, China Merchants Bank's net interest income and non-interest net income both declined in the first half of the year, and its core retail business also suffered some impact. Especially, the important transformation lever "Wealth Management" has frequently exposed risks, significantly dragging down its performance.

Decline in Interest Income and Non-Interest Income

The slowdown in loan growth combined with the continuously decreasing net interest margin has become the main factor for the decline in China Merchants Bank's operating income.

During the reporting period, China Merchants Bank's total loans increased by 238.94 billion yuan, a growth of 3.67%. In the same period last year, the bank's total loans increased by 303.98 billion yuan, a growth of 5.02%. As for the net interest margin, China Merchants Bank's net interest margin has been continuously declining, gradually decreasing from 2.59% in 2019 to 2%. Nevertheless, among joint-stock banks, China Merchants Bank's net interest margin still leads.

At the shareholders' meeting in June, China Merchants Bank President Wang Liang stated that for the bank, the net interest margin will continue to decline in the future, but will gradually slow down and stabilize. As long as the bank maintains good asset quality and a high provision coverage ratio, the profit level will also relatively bottom out and show a stabilizing trend.

In the first half of this year, China Merchants Bank achieved a net interest income of 104.449 billion yuan, a year-on-year decrease of 4.17%. Not only did net interest income decline, but China Merchants Bank's non-interest net income also declined. During the reporting period, China Merchants Bank achieved a non-interest net income of 68.496 billion yuan, a year-on-year decrease of 1.39%.

It is worth noting that the growth rate of China Merchants Bank's retail customer base is also slowing down. In 2023, although the bank's performance was weak, the growth rate of its customer base was good, and it could still counter the risk of declining net interest margin through the tactic of "quantity compensating for price", by reserving new customers to tide over the cycle. However, with the slowing growth rate of the customer base, it may be difficult for China Merchants Bank to restore its previous high-growth momentum.

As of the end of June, China Merchants Bank's retail loans amounted to 3.54 trillion yuan, accounting for 52.48% of the total loan amount. The bank had 202 million retail customers, an increase of 2.54% from the end of the previous year. In the same period in 2023, the growth rate of China Merchants Bank's retail customer base was 3.26% In fact, starting from 2022, China Merchants Bank's pressure began to show, with revenue and net profit growth slowing down. In 2023, China Merchants Bank enlarged the current profit by reducing the provision for impairment losses, ensuring the growth of net profit. Although China Merchants Bank continued to reduce provisions in the first half of this year, it still could not avoid a decline in net profit.

In the first half of this year, China Merchants Bank's profit before provisions was 116.577 billion yuan, which has regressed to the level of three years ago. The year-on-year decrease of 4.52% also hit a new low in nearly a decade. At the same time, the amount of provision for impairment losses has decreased for three consecutive years, dropping to 26.936 billion yuan.

In terms of asset quality, China Merchants Bank's asset quality is the best among the disclosed joint-stock banks, with non-performing loan balance of 63.427 billion yuan, an increase of 1.848 billion yuan from the end of the previous year; the non-performing loan ratio is 0.94%, a decrease of 0.01 percentage points from the end of the previous year.

Wealth Management Faces Successive Obstacles

The competition in the banking industry is becoming increasingly fierce, entering a stage of overall stock competition. As various banks are transforming into light banks, China Merchants Bank's leading retail business has been impacted, and its position as the "king of retail" has begun to shake.

In 2020, China Merchants Bank proposed the concept of "Wealth Management", further transforming into a light bank, including wealth management, asset management, and custody business fee and commission income. However, starting from 2022, the pressure on China Merchants Bank's Wealth Management has also begun to show.

In the first half of this year, compared to the decline in net interest income, China Merchants Bank's non-interest net income declined relatively slowly in the first half of the year, down by 1.39% year-on-year. However, by dissecting the non-interest income, it is not difficult to find that the overall good performance of China Merchants Bank's non-interest net income in the first half of the year is due to the continued bull market in the bond market, which has brought decent investment income performance to China Merchants Bank.

Due to the performance of China Merchants Bank's investment income, it has made a significant contribution to its non-interest net income, thereby overshadowing the decline in fee and commission income. In the first half of this year, China Merchants Bank's fee and commission income was 42.552 billion yuan, a decrease of 17.11% year-on-year.

In an environment where the equity market is performing poorly, the continued effect of lower fees in insurance and funds, as well as the decrease in the scale and sales volume of equity funds, have led to a significant decline in China Merchants Bank's Wealth Management income.

In the fee and commission income, except for a slight increase in settlement and clearing fees, all other items decreased year-on-year, with the largest decrease in wealth management fees and commissions, reaching 32.51%. Among them, the agency income coefficient of insurance, funds, and trusts declined, with insurance income dropping by as much as 57.34% Author of this article: Damo Finance, Source: Damo Finance, Original Title: "Rare Decline, China Merchants Bank Delivers Its Worst Semi-Annual Report in 14 Years"