The Banking and Strategy Initiative

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China’s Banks pull in claws!: Could #5 BoCOM beat #4 Bank of China (2011 results reports)

Despite a almost 30% improvement, Bank of China is stilll the worst of the big Four banks in NPLs with 1.8% as its ratio of NPLs five times that of BOCOM and almost 70% higher than AgBank which is #2 in Assets. meanwhile China Citic Bank which is well behind BOCOM but ahead of most other Private Banks reported a net profit of 31 bln Yuan or $4.9 bln while BOCOM reported CnY 50.75 bln or $8.1 bln.

China Merchants Bank also reported annual profits of nearly CnY 36 bln while Bank of China reported ahead of forecasts at CnY124 bln

China Citic and BOCOM manage with a 12.27% CAR while HSBC holds 19.8% in BoCOM and helps it manage card operations efficiently among other coooperation in business.

While profits at the Big 4 have risen past CnY 600 bln again, BOC is coming under pressure to improve its bad loans further and BOCOM is readying itself for a big thrust in lending with a CnY 56 bln or $9 bln issue in Hongkong with other midsize banks like industrial Bank and Mingsheng bank also raising $4 bln and $1 bln respectively Only the Big 4 are expected to shoulder a higher CAR of 11.5% with 10.5% core CAR while others have a lower Capital requirement allowing the faster growing Top 10 private lenders to grow in size esp with Foreign banks able to extend credit to them.

China CITIC ran up hardly Cny 62 bln in NII and CnY 11 bln in Fee income but the growth was 40% and 55% respectively BOC profits rose only 18% while BOCOM profits rose 30% with

Bank of china scored RMB 320 bln in NII and Fee income together Fee and other income growing by 22% for the year to RMB 100 bln. its NIM till Q3 was a low 2.1% and things cannot improve in 2012 for the lender with 70% Huijin ownership and a balance sheet that was over $1.8 tln before its portfolio of LGFV loans was added to the Balance sheet and the RMB 97 bln of Euro loans on its balance sheet were netted out by the bank in the last quarter.

Bank of China relies on FX business with BOC holdings in HK holding a quarter of its assets to HK$1.6 tln Bank of china also reduced its dividend payout to 35%

BOCOM  NIMs on the other hand improved a further 10 bp from its higher levels and it halved dividend payout to less than $1 bln. Its NII was a healthy CnY 102 bln and Fee income CnY 19.55 bln. BOCOM’s Capital Target is 9.5% which it has achieved barely by these two measure on dividend and new issuance in Hongkong. Its aggregate CAR is as good as 12.27% before this year’s Capital raising exercise.

If BoCOM grew at its 25% pace for the rest of the teens it could not cross BOc’s $1.8 tln balance sheet once corrected for all bad loans on the book of nearly $30-32 bln. Its loans stand at CnY 2.56 tln out of Assets of CnY 4.61 Tln compared to 11Tln for BOC. Its cost income ratio is 30.2% and PCR of 255%. Customer Deposits at BOCOM increased 14% to 3.28 Tln of which Corporate Deposits were CnY 2.2 Tln. It also holds Domestic AUM of CnY1.5tln in wealth assets. The loan portfolio has CnY 2 tln to corporates and CnY500 bln to Individuals  growing at 12.8% and 21% respectively. its impaired assets are best in Class at 0.84% and a volume of CnY 12 tln in Inter Bank transactions for the Best Spot FX maker in China. The increase of CnY 17.6 bln in NII of which CNY 12 bln was from increase in business volumes and at least CnY 5.5 bln from increased efficiencies in ARR and Cost. Interest paid on Customer deposits increased by almost 50% to RMB 54 bln incorporating al lthe 5 2011 hikes in benchmark and lending rates. Inter banak interest expenses grew by 72% to RMB 31 bln. Yet the bank increased Spreads and NIMs by 10 bp tpo 2.49% and 2.59% comparing with ICBC








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