China Merchants Bank's net profit up 12% to RMB13b in 1Q13

4 key positives revealed here.

According to Barclays, CMB reported 1Q13 net profit of RMB 13bn, up 12% y/y. The key positives, in Barclays' view, include: 1) strong fee income growth of 34% y/y or 27% q/q in 1Q13; 2) Tier-1 ratio improved by 26bps q/q to 8.6% as of end-March, under new capital rules; 

3) tight expense control as operating expense only up 6% y/y, helped to lower cost to income ratio by 0.8ppt y/y to 37.7% in 1Q13; and 4) NIM down only 4bps q/q to 2.93% in 1Q13, better than expected.

The key negative was the deteriorating asset quality, with NPLs rising 11.6% q/q in 1Q13 (vs. +7.1% in 4Q12) and ratio also crept up by 4bps to 0.66%. There is no progress mentioned on rights issue approval. 

Here's more from Barclays:

Sequential NIM down only 4bps: CMB’s NIM decreased by only 4bps q/q to 2.93% in 1Q13 (vs. -15bps q/q at CITIC bank and -25bps q/q at Minsheng).

The smaller than expected sequential NIM drop was a positive surprise, given the bank’s relatively big mortgage loan portfolio (17% of total loans at end-2012). Driven by stable NIM and steady loan growth, CMB’s net interest income rose 2.0% q/q.

The bank’s total loan grew by 4.5% in 1Q13, mainly attributable to overseas (+47.3% in 1Q13), and domestic loan was only up 2% from beginning of this year. Total deposits rose 7.8% in 1Q13, driven by domestic deposits (+7.95%).

Total interbank assets and liability shrunk: Total interbank assets and liability shrunk by 5%/25% q/q, respectively (vs. +46%/+30% in 4Q12). However, we noticed the bank’s reverse repo was up 138% q/q to RMB 255bn as of end-March, which was explained to be driven by reverse repo collateralized by discounted bills and trust assets.

Strong fee income growth: the bank’s fee income increased significantly by 34% y/y or 27% q/q to RMB 6.5bn in 1Q13, accounted for 21% of total operating income. The strong growth was mainly driven by agency fees, commission from custody and other trust business.

NPL amount increased rapidly, though from a low base: CMB's NPL amount surged by 11.6% q/q to RMB 13bn as of end-March (vs. +7.1% in 4Q12), NPL ratio up 4bps q/q to 0.66%.

However, the bank’s credit cost was only 42bps in 1Q13 (vs. 47bps in 1Q12). Its NPL coverage ratio continued to drop, down by 24ppts q/q to 328% at end-1Q13, and its reserves to loan ratio declined to 2.15% at end-1Q13 (-1bp q/q).

Tier-1 ratio benefited from new capital rules: The new capital rules lifted CMB's Tier-1 ratio by 15bps to 8.6% at end-1Q13, but lowered its total CAR by 55bps to 11.41%.

CMB and ICBC are the only two Chinese banks benefited from the new capital rules under our coverage, other banks general see their Tier-1 ratios down by 50-90bps under the new rules.