Sub-sector: Banks
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Fundamental View
AS OF 24 Jun 2024Goldman Sachs has had solid but mixed results in recent years, with strength in trading results particularly during periods of market volatility. Investment banking results have weakened in line with market conditions but Goldman’s market share remains strong. Investment banking appears to be rebounding in early 2024. The funding profile has improved over time with increased deposit funding.
Goldman remains well behind “Big 6” peers in diversifying its revenue base beyond its historical strong points. Wealth and Asset Management are now the most likely areas of growth in the coming years. Goldman’s results have been weighed by costs related to consumer banking and exits from those businesses.
Goldman Sachs’ (A2/BBB+/A) HoldCo long-term debt ratings have stable outlooks.
Business Description
AS OF 24 Jun 2024- Goldman Sachs is now the fifth largest bank holding company in the U.S. with approximately $1.69 tn in assets as of 1Q24 and a market capitalization of $158.9 bn as of May 16, 2024.
- Goldman Sachs presents its activities through three business segments: Global Banking & Markets, Asset & Wealth Management, and Platform Solutions.
- Goldman's historical strengths include equity and FICC sales & trading, investment banking, institutional investment management including alternatives, and high net worth wealth management. It has been expanding its wealth management client base, and adding other stable fee income streams amid a sluggish capital market environment.
Risk & Catalysts
AS OF 24 Jun 2024From a fundamental standpoint, the past several years have been a mixed bag. Goldman’s foray into consumer lending was costly and ultimately did not work, diverting capital and management attention away from its core businesses and providing a meaningful drag on profitability. Management through most of the process of selling consumer-related businesses. Goldman’s performance has remained strong in its legacy areas of strength in trading and investment banking.
Goldman could participate in further M&A to achieve its long-term strategic goals, as it has in recent years with mixed results; most likely through add-on deals related to asset/wealth management.
Goldman could be impacted by the lack of liquidity in the secondary markets during periods of market turmoil, but for the most part, has been positively impacted by bouts of volatility.
Key Metrics
AS OF 24 Jun 2024$ mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
ROAE (annual) | 10.3% | 21.3% | 9.7% | 7.3% | 8.1% |
ROAA (annual) | 0.8% | 1.5% | 0.7% | 0.5% | 0.6% |
PPNR / Avg. Assets | 1.34% | 1.86% | 1.08% | 3.29% | 0.83% |
Efficiency Ratio | 66% | 54% | 65% | 282% | 70% |
Net charge-offs (LTM) / Loans | 0.70% | 0.19% | 0.30% | 0.68% | 0.73% |
Common Dividend Payout | 19.0% | 10.6% | 28.4% | 158.9% | 38.8% |
CET1 Ratio | 14.1% | 13.6% | 15.0% | 14.4% | 14.6% |
Supplementary Leverage Ratio (SLR) | 6.9% | 5.5% | 5.8% | 5.5% | 5.4% |
Liquidity Coverage Ratio (LCR) | 128% | 122% | 129% | 128% | 128% |
CreditSights View
AS OF 18 Apr 2024We maintained our Market perform recommendation for Goldman Sachs; we remain quite comfortable with the name fundamentally but see better value at money center banks as well as Morgan Stanley, given recent spread levels, which we believe have been pulled tighter by a lack of HoldCo issuance by GS since the start of 2023. We see Goldman Sachs as an improving credit story despite messy results in 2023 as it exited a number of consumer-facing businesses, and 1Q24 results were stronger in core business lines within Global Banking & Markets and Asset & Wealth Management with less of a drag from Platform Solutions.
Recommendation Reviewed: April 18, 2024
Recommendation Changed: January 12, 2022
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Fundamental View
AS OF 18 Jun 2024Siam Commercial Bank (SCBTB; Baa1(stb)/BBB(stb)/BBB(stb)) is seen as a sound and profitable bank. It has a slight focus on the retail segment and targets to increase margins by growing personal unsecured lending. Recent credit costs have been elevated due to the retail exposure.
The capital buffer is strong with a CET1 ratio of 17.4% at the Holdco (SCB X) level and 17.2% at the Bank level at Mar-24. It announced a major business overhaul in September 2021 to establish a new parent company called SCB X to segregate the group’s core banking services from its new fintech and digital businesses and to enable greater flexibility and independence.
Business Description
AS OF 18 Jun 2024- Siam Commercial Bank was founded as the "Book Club" in 1904. In 1907, it started operating as a commercial bank and was renamed as "The Siam Commercial Bank". It completed its IPO on the Stock Exchange of Thailand in 1976.
- The bank is 23.58% owned by the King of Thailand, and a further 23.32% is owned by the Vayupak Fund 1, which is controlled by the government.
- SCB is the fourth largest Thai bank by assets and is known for its robust retail franchise.
- Its loan profile was 36% corporate, 17% SME, and 48% retail as of end-March 2024.
Risk & Catalysts
AS OF 18 Jun 2024The bank’s new strategic direction is sensible given limited domestic growth opportunities, but it comes with execution risk since the fintech and platform space are new to SCB, as well as higher credit costs. However, we take comfort in the ringfencing of the bank unit (SCB) from the Group’s riskier business units, and capital support to the Gen 2/3 businesses is subject to a minimum 16% CET1 ratio being maintained at the bank.
High household debt and challenged SMEs remain as longstanding issues in Thailand, but SCB X’s higher NIM and low-to-mid 40%s cost-income ratio provide comfortable room to absorb its higher credit costs and maintain a similar level of returns as peers.
SCB X has given a stronger FY24 NIM guidance than peers, supported by a strong deposit franchise and a growth focus on higher yielding retail loans. Recent guidance from authorities to reduce borrowing rates for vulnerable pockets of SME and retail customers and improve their lending access however present some headwind.
Key Metrics
AS OF 18 Jun 2024THB mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 2.58% | 2.63% | 2.50% | 2.88% | 2.91% |
ROA | 0.9% | 1.1% | 1.1% | 1.3% | 1.3% |
ROE | 6.7% | 8.4% | 8.3% | 9.3% | 9.3% |
Equity/Assets | 12.6% | 13.4% | 13.5% | 14.1% | 14.5% |
CET1 Ratio | 17.2% | 17.6% | 17.7% | 17.6% | 17.4% |
Reported NPL ratio | 3.68% | 3.79% | 3.34% | 3.44% | 3.52% |
Provisions/Loans | 2.14% | 1.84% | 1.45% | 1.82% | 1.67% |
Gross LDR | 93% | 93% | 93% | 99% | 102% |
Liquidity Coverage Ratio | 188% | 202% | 216% | n/m | n/m |
CreditSights View
AS OF 23 Apr 2024SCB is the 4th largest bank in Thailand and has a leading retail franchise. Asset quality during COVID was poor. It created a new HoldCo structure (SCBX) in 2022 to shift digital units and unsecured retail loans outside the bank, and pledged a >16% CET1 ratio at SCB. The BOT has also ringfenced SCB which further reduces the risk for the SCBTB bonds. However, the COVID Blue scheme book still sits within SCB and is the highest % of loans among peers (12% at 4Q23). We are slightly cautious about credit costs that may arise from this book. FY24 credit costs are guided to be slightly lower than FY23’s elevated levels, but they can be comfortably absorbed as we expect the NIM to be most resilient among peers this year, and FY23 returns led peers despite the high credit costs.
Recommendation Reviewed: April 23, 2024
Recommendation Changed: January 25, 2023
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Fundamental View
AS OF 18 Jun 2024Krung Thai Bank (KTB; Baa1(stb)/ BBB-(pos)/ BBB+(stb)) is the 3rd largest bank by assets in Thailand, with a 55.07% state ownership through the Financial Institutions Development Fund. Strong government support underpins KTB’s underlying credit profile.
The state influence opens up the bank to potentially government-directed lending; it has secured an increasingly meaningful portion of banking business from government agencies and State Owned Enterprises, which underscored its one-notch upgrade by Fitch in Dec-21.
KTB was faced with asset quality challenges in the past and had the highest NPL ratio and restructured loans among the major Thai banks. It has since de-risked its loan book, and asset quality has proven to be more resilient than its peers with lower COVID-19 restructured loans.
Business Description
AS OF 18 Jun 2024- KTB is the 3rd largest bank by assets in Thailand. The Thai Financial Institutions Development Fund owns 55.07% of the bank, and has a free float of 44.93%.
- Being the largest state-owned bank, it secures a meaningful portion of banking business from government agencies and State Owned Enterprises (SOEs) and per the bank, is the preferred bank for the government and SOE employees.
- Though state owned, the bank runs on a commercial basis and is not considered as a policy bank.
- KTB's loan profile comprised 45% retail, 28% private corporates, 11% SME, and 16% Government & SOEs at end-March 2024.
Risk & Catalysts
AS OF 18 Jun 2024High household debt and challenged SMEs remain as longstanding issues in Thailand while growth momentum has remained sluggish. KTB’s conservative focus on the government agencies/SOEs segment however is supporting its asset quality well.
Rising base rates have been good for the NIM, but margins could come under greater pressure than peers as rate cuts come through possibly from 2H24 onwards given the larger corporate/SOE loan book (which tend to be floating rate). Loan growth has also been middling across the Thai banks due to a focus on quality amid the current backdrop.
We see a two-notch differential between the standalone credit fundamentals of KTB vs. the other top Thai banks at Moody’s as wide and there is an upgrade potential for KTB’s standalone credit profile in the medium term.
Key Metrics
AS OF 18 Jun 2024THB mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 2.17% | 1.83% | 1.98% | 2.40% | 2.49% |
ROA | 0.53% | 0.63% | 0.94% | 1.01% | 1.20% |
ROE | 4.9% | 6.1% | 9.2% | 9.4% | 10.8% |
Equity/Assets | 10.7% | 10.5% | 10.9% | 11.4% | 11.7% |
CET1 Ratio | 15.4% | 15.6% | 15.6% | 16.5% | 16.4% |
Calculated NPL ratio | 3.81% | 3.50% | 3.26% | 3.08% | 3.14% |
Provisions/Loans | 2.03% | 1.31% | 0.93% | 1.43% | 1.24% |
Gross LDR | 99% | 99% | 98% | 104% | 101% |
Liquidity Coverage Ratio | 188% | 196% | 201% | n/m | n/m |
CreditSights View
AS OF 23 Apr 2024KTB is the 3rd largest bank in Thailand by assets and the largest state-owned bank. It is 55% indirectly owned by the Thai government and thus secures meaningful business from government agencies and SOEs. KTB was faced with asset quality challenges in the past and had the highest NPL ratio among the major Thai banks. Its fundamentals have improved as it de-risked its loan book, so asset quality was more resilient than peers during COVID. It has a >16% CET1 ratio and a high 80% CASA ratio, which should help to mitigate NIM pressure arising from its larger corporate/SOE book when rate cuts flow through. The government/SOE book increased again to ~16% of loans in 1Q24 and credit costs returned to the normal 120-130 bp range. We have an O/P rec as its $ AT1 trades wide relative to Thai peers.
Recommendation Reviewed: April 23, 2024
Recommendation Changed: March 26, 2024
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Fundamental View
AS OF 18 Jun 2024Kasikornbank (KBANK; Baa1(stb)/BBB(stb)/BBB(stb)) is a historically sound and profitable bank.
Capitalisation is strong and the bank has among the highest CASA ratios in the banking sector. However, asset quality took a surprise turn for the worse in 4Q22 due to its larger SME exposure, and credit costs remain elevated.
Margins are leading among the Thai banks we cover as a result of its strong SME franchise, but the NIM has been falling steadily over the past 5 years as a result of strong competition. Rising base rates in 2023 have provided a boost, but the bank is now focusing growth on the safer but lower yielding segments to diversify its exposure.
Business Description
AS OF 18 Jun 2024- KBank is currently the second largest bank in Thailand. It briefly was the largest from 2018 until mid-2020, upon which Bangkok Bank completed its acquisition of Indonesia's Bank Permata and took its place.
- KBank's history can be traced back to 1945 when it was first established as Thai Farmers Bank. It was listed on the Stock Exchange of Thailand in 1976 and changed its name to Kasikornbank in 2003.
- As of end-March 2024, the bank's loan mix by segment consists of 38% corporate, 28% SME, 27% retail and 7% others.
- KBank is known for its strong SME franchise. Its focus industries in SME are construction, construction materials, food & beverage, and hardware.
- It partially owns a life insurance company, Muang Thai Life.
Risk & Catalysts
AS OF 18 Jun 2024High household debt and challenged SMEs remain longstanding issues in Thailand, but KBANK’s higher NIM and low-40%s cost-income ratio provide comfortable room to absorb its higher credit costs and maintain a similar level of returns as peers.
Loan growth has been middling across the Thai banks due to a focus on quality given elevated household debt and challenged SMEs, and a larger and prolonged balance sheet cleanup at KBANK which is slated to be completed by YE24.
KBANK expects to be able to maintain a flat FY24 NIM even as peak NIMs have been hit in 4Q23, supported by its higher CASA funding mix, as well as larger retail and SME loan book should rate cuts come through this year. However, its continued pivot away from the higher yielding unsecured retail and SME segments and recent guidance from authorities to reduce borrowing rates for vulnerable pockets of SME and retail customers and improve their lending access present some headwind.
Key Metrics
AS OF 18 Jun 2024THB mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 2.44% | 2.38% | 2.36% | 2.52% | 2.74% |
ROA | 0.85% | 0.98% | 0.86% | 0.99% | 1.25% |
ROAE | 7.0% | 8.3% | 7.3% | 8.2% | 10.0% |
Equity / Assets | 13.4% | 13.1% | 13.4% | 13.9% | 14.3% |
CET1 Ratio | 15.5% | 15.5% | 15.9% | 16.5% | 16.5% |
Gross NPL ratio | 3.93% | 3.76% | 3.19% | 3.19% | 3.19% |
Provisions / Loans | 2.05% | 1.73% | 2.11% | 2.08% | 1.89% |
Gross LDR | 96% | 93% | 91% | 92% | 91% |
Liquidity Coverage Ratio | 161% | 174% | 164% | n/m | n/m |
CreditSights View
AS OF 23 Apr 2024Kasikornbank is the 2nd largest bank in Thailand. We were cautious about its one third loan book exposure to SMEs given their challenges which were exacerbated by COVID, but have liked the bank’s high NIM, strong capital, and ability to grow in tough times. Credit costs spiked in 4Q22 mainly from the SME book and high yield small ticket lending. The bank is doing cleanups in FY23 and FY24, and has switched to focusing growth on the safer segments which will weigh on the NIM. FY24 credit costs will remain fairly elevated (guided at 175-195 bp) given the larger SME and Blue scheme book, but we expect the NIM to be more resilient than peers. Credit costs can thus be comfortably absorbed, but at the expense of losing its profitability lead over some of its Thai bank peers.
Recommendation Reviewed: April 23, 2024
Recommendation Changed: June 09, 2023
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Fundamental View
AS OF 18 Jun 2024Bangkok Bank (BBL: Baa1(stb)/BBB+(stb)/BBB(stb)) is a family run conservative financial institution, with high capital and liquidity levels.
It acquired Indonesia’s Permata Bank in 2020 which resulted in a meaningful decline in its CET1 ratio to 14%. It is back to ~15% range and management aims to bring the CET1 ratio to 16% in prepartion for Basel III final reforms.
Its profitability (ROA and ROE) has historically below the industry average, due in part to higher exposure to the lower-yielding corporates segment that has resulted in a lower NIM. However, the returns gap has narrowed as this has supported its asset quality outperformance versus peers, and allowed the NIM to benefit better from the rising rate environment as debt servicing capabilities of households and SMEs remain fragile.
Business Description
AS OF 18 Jun 2024- Bangkok Bank was set up in 1944 and was listed on the Stock Exchange of Thailand in 1975. It is a family-run bank and the current President of the bank, Chartsiri Sophonpanich, is the grandson of the founder of the bank.
- It is the largest bank by assets in Thailand. It was briefly surpassed by Kasikornbank in 2018, but the Bank Permata acquisition has taken BBL back to No.1.
- The bank is corporate-loan focused, and the loan book was split 44% corporate (most including international loans), 19% SME, 12% retail, and 25% international as at end-March 2024. It is by far the most international amongst the Thai banks, with branches in 14 economies.
- BBL's overseas presence has been enhanced by the acquisition of Bank Permata, the 12th largest bank in Indonesia. Bank Permata's asset size is ~10% of that of BBL.
Risk & Catalysts
AS OF 18 Jun 2024Returns have caught up well with peers in FY23 as the more resilient large corporate book has supported lower credit costs and better BOT rate hike pass through to the NIM, given the backdrop of high household debt, challenged SMEs and still sluggish growth momentum. However, we see greater NIM pressure on BBL than most peers in FY24 due to its lower CASA ratio as deposit rates catch up, as well as larger domestic and international corporate loan book (which tend to be floating rate) as rate cuts come through possibly from 2H24 onwards.
Loan growth has been middling across the Thai banks due to a focus on quality amid the current backdrop.
The acquisition of Bank Permata of Indonesia in May 2020 provides BBL with exposure to the high growth opportunities of the Indonesian market, which is the bank’s identified main base for overseas expansion, but this also presents higher risks.
Key Metrics
AS OF 18 Jun 2024THB mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 1.50% | 1.65% | 1.60% | 1.92% | 1.95% |
ROA | 0.49% | 0.65% | 0.67% | 0.93% | 0.93% |
ROE | 3.9% | 5.6% | 5.9% | 8.1% | 7.8% |
Equity / Assets | 11.8% | 11.4% | 11.5% | 11.8% | 12.2% |
CET1 Ratio | 14.9% | 15.2% | 14.9% | 15.4% | 15.6% |
Calculated NPL ratio | 3.90% | 3.20% | 3.10% | 2.70% | 3.00% |
Provisions / Loans | 1.41% | 1.38% | 1.24% | 1.26% | 1.27% |
Gross LDR | 84% | 82% | 84% | 84% | 86% |
Liquidity Coverage Ratio | 291% | 270% | 271% | n/m | n/m |
CreditSights View
AS OF 22 Jul 2024Bangkok Bank’s strength has been its large corporate book and strong capital. Returns though have been lower due to thinner corporate margins. BBL completed the acquisition of Indonesia’s Bank Permata (~12% of loans) in 2Q20 which reduced its CET1 ratio to 14%, but it has since rebuilt it to >15%. While disclosure from BBL is less than other key Thai banks and both systems face an overhang of COVID relief loans, we take comfort from BBL’s strong loss buffers and large corporate book which will aid stable asset quality and credit costs. Its lower CASA ratio makes it more susceptible to NIM pressure this year, but deposit competition is likely to remain in check. We keep BBL on M/P but think its seniors should trade 5-10 bp inside its Thai peers.
Recommendation Reviewed: July 22, 2024
Recommendation Changed: January 25, 2023
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Fundamental View
AS OF 12 Jun 2024For many years, Shinhan FG was the best-managed of the large Korean financial groups. During the Asian Financial Crisis, it took advantage of the opportunity to acquire competitors and other businesses, increasing its scale and expanding its business lines.
It has a good track record, but its performance has been more variable in the past few years. After a bumpy 2020, it had a better 2021, and FY22 was better still, thanks to rising interest rates. However, operating performance has turned weak again in FY23. NIM is well controlled.
Credit costs have increased but are within our expectations. Recurring credit costs are expected to decrease in FY24, but additional provisions may still be needed. Capital is comfortable, but the distance vs. KBFG has increased.
Business Description
AS OF 12 Jun 2024- Shinhan Financial Group (Shinhan FG) is one of Korea's most diversified financial groups and the holding company of the second largest Korean bank - Shinhan Bank. It also has credit cards, securities, asset management and insurance subsidiaries.
- Shinhan Bank was set up in 1982 with seed capital from Korean residents in Japan. It was more professionally managed than the heavily politicised older banks and came through the 1997 Asian Financial Crisis in relatively good shape, taking the opportunity to acquire the larger and much longer-established Chohung Bank in 2003.
- In 2007, it made another timely acquisition, buying LG Card from its creditors after it failed during the 2003 Korean consumer lending crisis. Shinhan Card is the largest card issuer in Korea.
- Shinhan is also looking for overseas opportunities where growth is strong and Korean businesses have a presence, with a focus on Vietnam (where Shinhan Card also bought a consumer finance business in 2019) and Indonesia. ~30% of Shinhan Bank's overseas loan book is in Japan and China.
Risk & Catalysts
AS OF 12 Jun 2024As one of Korea’s “Big Four” financial groups, we believe Shinhan FG would likely receive governmental support if needed.
Asset quality pressure is rising from domestic real estate project financing and overseas real estate investments, with credit costs rising from very low levels. Management expects recurring credit costs to decrease in FY24, but additional provisions may still be needed due to regulators’ guidance for financial institutions to take a more conservative stance on provisioning.
Shinhan FG made some relatively recent missteps, including misselling asset management products to retail investors, which resulted in KRW 63 bn in fines in 1Q21. As a consequence, Shinhan Securities’ senior management was replaced.
Key Metrics
AS OF 12 Jun 2024KRW bn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
Pre-Provision Profit ROA | 1.09% | 1.11% | 1.10% | 3.89% | 1.40% |
ROA | 0.60% | 0.66% | 0.72% | 0.66% | 0.77% |
ROE | 8.4% | 9.2% | 10.0% | 8.6% | 10.4% |
Provisions/Average Loans | 0.43% | 0.28% | 0.34% | 0.78% | 0.38% |
NPL Ratio | 0.49% | 0.39% | 0.41% | 0.56% | 0.62% |
CET1 Ratio | 12.90% | 13.10% | 12.79% | 13.13% | 13.09% |
Equity/Assets | 7.3% | 7.3% | 7.6% | 7.8% | 7.7% |
Net Interest Margin | 1.80% | 1.81% | 1.96% | 5.91% | 2.00% |
CreditSights View
AS OF 30 Apr 2024Shinhan FG is one of the four nation-wide commercial banking groups in Korea, with credit card and insurance arms. It had over many years the best operating track record, but the gap has narrowed and we now view Shinhan as overtaken by KB and Hana. 2023 has been challenging, as topline revenue growth was more than offset by increasing operating expenses and provisions. Asset quality is under pressure with the high NPL ratio among the four FGs. In the recent quarter, its CET1 ratio has declined but remained slightly above its 13% target.
Recommendation Reviewed: April 30, 2024
Recommendation Changed: September 22, 2020
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Fundamental View
AS OF 12 Jun 2024Hana Financial Group (Hana FG) struggled for several years to make its acquisition of the former Korea Exchange Bank a success, but results improved dramatically in 2015 as revenues grew and cost efficiencies improved.
It has produced particularly strong results since 2020 and is the most improved of the financial groups; we see an improvement in NIM, some loan growth, good fee income growth and expense management, and a continued strong capital position in the latest quarter.
The group is looking for inorganic growth in its non-bank businesses as it has fallen behind Shinhan FG and KBFG in this area, but has so far shied away from a large acquisition.
Business Description
AS OF 12 Jun 2024- Hana FG is the third-largest financial group in South Korea. From small origins as a finance company in the 1970s, after the 1997 Asian crisis, Hana grew by acquiring three other banks, including the much older Seoul Bank, which had a banking and trust management business.
- Hana FG bought Korea Exchange Bank (KEB) from Lone Star in 2012 after overcoming many hurdles, but due to staff union opposition, it could not merge with Hana Bank until 2015.
- Hana FG's overseas business is smaller than peers and is complemented by KEB's extensive international operations. KEB was started in 1967 as a government-owned bank specialising in foreign exchange. It has a leading share in FX transactions and trade finance among Korean banks.
- Hana FG has shown good growth in its credit card and securities non-bank businesses, but is less diversified than its larger peers KB and Shinhan, which have also acquired insurance companies. Its latest acquisition (in 2019) was a 15% stake in Vietnam's state-owned Bank for Investment & Development (BIDV). Hana FG has recently decided not to proceed with the acquisition of KDB Life Insurance after two months of due diligence.
Risk & Catalysts
AS OF 12 Jun 2024Similar to peers, Hana FG reported a decline in credit costs to 25 bp in 1Q24 (4Q23: 39 bp), benefiting from the base effect of last year’s high provisioning and some loss recovery at Hana Bank; the group is prepared to increase provisioning from Q2 onwards given the FSS guidance and potential market defaults on the horizon.
The group’s NIM performance has been weaker than peers these years but increased marginally in 1Q24.
Hana FG took provisions in 4Q19 for a JV investment with China Minsheng Investment and for potentially mis-selling high-risk investment funds to retail investors, and in 2Q20 for private equity exposure, with limited further details. Some fines/regulatory action are expected due to the mis-selling of equity-linked securities to retail investors in 2021.
Key Metrics
AS OF 12 Jun 2024KRW bn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
Pre-Provision Profit ROA | 1.07% | 1.07% | 1.10% | 1.11% | 1.22% |
ROA | 0.61% | 0.74% | 0.66% | 0.59% | 0.70% |
ROE | 9.0% | 10.9% | 10.1% | 9.0% | 10.4% |
Provisions/Loans | 0.30% | 0.16% | 0.34% | 0.45% | 0.27% |
NPL Ratio | 0.40% | 0.32% | 0.34% | 0.49% | 0.53% |
CET1 Ratio | 12.0% | 13.8% | 13.2% | 13.2% | 12.9% |
Equity/Assets | 6.7% | 6.8% | 6.4% | 6.6% | 6.6% |
Net Interest Margin | 1.60% | 1.66% | 1.83% | 1.82% | 1.77% |
CreditSights View
AS OF 30 Apr 2024Hana FG grew through acquisitions but only in 2015 was it able to merge its two main bank units to form KEB-Hana Bank. Hana’s management has a good record but for some years struggled to extract value from its acquisitions. The group reported a decline in credit cost to 25 bp in 1Q24, benefiting from the base eff ect of last year’shigh provisioning and some loss recovery at Hana Bank. Nonetheless, As the group anticipates restructuring in Q2 and Q3, starting with bridge loans, it is preparing for more aggressive provisioning. In 1Q24, the group’s CET1 ratio declined by 34 bp to 12.88% QoQ due to the FX impact of KRW depreciation and ELS provisioning, but remained well above regulatory requirements.
Recommendation Reviewed: April 30, 2024
Recommendation Changed: April 24, 2017
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Fundamental View
AS OF 04 Jun 2024JPMorgan is one of the strongest and best positioned banks to navigate the current environment, with a well-diversified business model and good competitive positioning across a variety of lending and capital markets areas.
The company continues to deploy its considerable earnings power into reinvestment, specifically around technology where we are bullish on its ability to drive competitive advantages through strategic enhancements and efficiency gains.
Business Description
AS OF 04 Jun 2024- JPMorgan ranks as the largest U.S. bank by total assets ($4.09 tn at 1Q24) and deposits ($2.43 tn at 1Q24).
- JPMorgan ranks 1st in terms of U.S. deposits with approximately $2.07 tn in deposits at YE23 across 4,918 branches (S&P Capital IQ). JPMorgan's footprint includes New York (#1), Texas (#1), California (#2), Illinois (#1), Michigan (#1), Arizona (#1), Ohio (#5), and Florida (#4), among others.
- JPMorgan's major business lines include investment banking, retail banking, card services, treasury & securities services, commercial banking, and asset & wealth management.
Risk & Catalysts
AS OF 04 Jun 2024Succession planning at JPMorgan has a higher profile than many peers, with CEO Dimon (66 year-old) having held the top spot for over 15 years. Another recent round of shuffling top management did not yield much clarity, with presumed frontrunners Marianne Lake becoming sole CEO of the Consumer Bank and Jennifer Piepszak moving over to co-CEO of the new Commercial & Investment Bank segment, alongside Troy Rohrbaugh who has been running Markets & Securities Services.
The sector remains exposed to reputational, legislative/administrative risk, and cyber threats, although the significant tech spend over the past few years should (theoretically) result in a stronger position for JPM to manage the security threats.
Although not likely a credit risk, JPMorgan may continue to be acquisitive around non-bank financial and ancillary services; but we would expect any deal to be conservatively funded and looking to further technology and fee income strategies (e.g. payments or asset management).
Key Metrics
AS OF 04 Jun 2024$ mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
ROAE (annual) | 10.9% | 17.0% | 13.2% | 16.0% | 15.9% |
ROAA (annual) | 0.9% | 1.3% | 1.0% | 1.3% | 1.3% |
PPNR / Avg. Assets | 1.52% | 1.32% | 1.39% | 7.06% | 1.82% |
Efficiency Ratio | 57% | 59% | 58% | 214% | 55% |
Net Interest Margin (Annual) | 1.98% | 1.63% | 2.00% | 2.70% | 2.72% |
Net charge-offs (LTM) / Loans | 0.52% | 0.26% | 0.25% | 0.48% | 0.53% |
Common Dividend Payout | 38% | 24% | 32% | 101% | 25% |
CET1 Ratio | 13.1% | 13.1% | 13.2% | 15.0% | 15.0% |
Supplementary Leverage Ratio (SLR) | 6.9% | 5.4% | 5.6% | 6.1% | 6.1% |
Liquidity Coverage Ratio (LCR) | 110% | 110% | 110% | 112% | 112% |
CreditSights View
AS OF 15 Apr 2024We moved back down to a Market perform on JPM following the SVB debacle and subsequent selloff; JPM was (rightfully) viewed as a flight-to-quality name amid the volatility, but continues to trade that way with spreads anchored ~10 bp tighter to money center peers even after the rally. Supply could be a modest relative value technical headwind with banks returning to the market to re-up regulatory needs; JPM is generally more exposed on the new issuance front to LTD/TLAC needs from the regulatory changes. Value against broader corporates is still attractive however, supporting the overall M/P view, and there remain no real concerns with the core credit: the strength and resiliency of the diverse franchises has been on full display the past several years.
Recommendation Reviewed: April 15, 2024
Recommendation Changed: April 17, 2023
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Fundamental View
AS OF 24 May 2024Our credit view on AGRBK (credit ratings: A1(neg)/A(stb)/A(neg)) is based on a strong likelihood of state support, given its large size, systemic importance and majority state ownership. This is enhanced by AGRBK’s extensive presence in rural areas.
AGRBK’s capital standing is weaker than those of peer-group leaders ICBCAS and CCB and in line with BCHINA; however it has peer-leading reserve coverage ratio. The Big 4 have been managed more prudently in recent years than the smaller and more aggressive joint stock banks.
We view it as a strong credit taking into account its structural profitability, robust balance sheet metrics, large size, and systemic importance that assure it of state support if needed.
Business Description
AS OF 24 May 2024- AGRBK has surpassed CCB to become the second-largest bank in China in terms of total assets and has been moved from bucket 1 to bucket 2 in the G-SIB list with a capital surcharge of 1.5%.
- It was founded in 1951 as the Agricultural Cooperative Bank, merged with the central bank and spun out as AGRBK in 1979, charged with financing the rural and agricultural sectors. It was recapitalised in 1999 and again in 2007 by special MOF bonds. It also received $19 bn in equity capital from Huijin, funded by China's FX reserves.
- Due to its poorer asset quality and weaker profitability, AGRBK was the last of the Big 4 banks to be listed in 2010.
- The Chinese government is a majority shareholder of AGRBK via Central Huijin (40.14%), MOF (35.29%) and the Social Security Fund (6.72%).
- AGRBK has the second largest branch network in China after Postal Bank, with a particularly good presence in rural areas.
Risk & Catalysts
AS OF 24 May 2024China’s sovereign ratings (A1(neg)/A+(stb)/A+(neg)) are a key factor behind AGRBK’s credit standing.
AGRBK’s loan growth has been the strongest among the Big 5 banks since FY22, but the impact on net interest income growth was largely offset by a significant contraction in NIM. Rapid loan growth has led to a widened capital ratio differential between AGRBK and other Big 4 banks. It was promoted to a Bucket 2 G-SIB in Nov-23 and currently has a substantial TLAC shortfall to meet by 1 January 2025 and 1 January 2028. It plans to issue up to RMB 50 bn of TLAC notes this year.
AGRBK is managed on commercial terms but the government may call on it to perform “national service” that overrides profitability considerations. However, we do not see it as a clear credit negative as these actions reflect close state links that underpin ABC’s credit standing.
Key Metrics
AS OF 24 May 2024RMB bn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 1.65% | 1.64% | 1.43% | 1.20% | 1.32% |
Reported ROA | 0.83% | 0.86% | 0.82% | 0.73% | 0.69% |
Reported ROE | 11.4% | 11.6% | 11.3% | 10.9% | 11.4% |
Total Equity/Total Assets | 8.1% | 8.3% | 7.9% | 7.2% | 7.1% |
CET1 Ratio | 11.0% | 11.4% | 11.2% | 10.7% | 11.4% |
NPL Ratio | 1.56% | 1.43% | 1.37% | 1.33% | 1.32% |
Credit Costs | 1.16% | 1.03% | 0.79% | 0.64% | 0.96% |
Loan-Deposit Ratio | 74% | 78% | 79% | 78% | 77% |
CreditSights View
AS OF 03 Sep 2024AGRBK is the 2nd-largest Chinese banks by assets and has a strong presence in rural areas, which gives it access to a large pool of low-cost deposits. We view it as a strong credit due to its structural profitability, robust balance sheet metrics, large size and systemic importance that assure it of state support. Its loan growth has led peers for many years, which has put its capital ratios under pressure, with some distance vs. the other Big 4 banks. Reserve cover is a strength at ~300%. AGRBK was the only Big 5 bank that reported profit growth in 1H24, due to stronger loan growth. Due to China’s weaker macro outlook, challenging prospects for the sector, and tighter spreads compared to elsewhere in Asia, we have a U/P recommendation.
Recommendation Reviewed: September 03, 2024
Recommendation Changed: August 22, 2023
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Fundamental View
AS OF 24 May 2024Our credit view on China Construction Bank (CCB; ratings: A1(neg)/A(stb)/A(neg)) is based on a strong likelihood of state support in the event of distress, given its large size, systemic importance and majority government ownership.
Its systemic importance is enhanced by the key role it plays in financing China’s economic development and its close government links (and large government shareholding).
The Big 4 banks are generally more prudently managed than their more aggressive smaller competitors, but they are also expected to support the real economy in a downturn.
Business Description
AS OF 24 May 2024- CCB is one of the Big 4 Chinese banks and is classified as a G-SIB requiring an additional capital surcharge of 1.5%.
- CCB was originally formed in 1954 as a subsidiary of China's MOF to disburse funds intended for fixed asset investment. In the early 1980s, it started taking deposits and making loans outside of direct MOF control. In 1998, its NPLs were transferred to Cinda AMC in exchange for RMB 247 bn of Cinda bonds.
- The bank was re-capitalised again in 2003 with an injection of $23 bn by the PBOC. It was listed in 2005 but the Chinese government remains its controlling shareholder with a 57.14% stake held through state-owned Central Huijin.
- The bank owns CCB Asia and CCB International in Hong Kong as well as operations in a number of countries.
Risk & Catalysts
AS OF 24 May 2024China’s sovereign ratings (A1(neg)/A+(stb)/A+(neg)) underpin CCB’s credit standing; any deterioration in the sovereign ratings will negatively affect CCB’s ratings.
CCB may be asked by the government to perform “national service” that overrides profitability considerations, e.g. supporting troubled property developers and the real economy by extending loans at lower rates. We would not regard such actions as credit-negative as they reflect close government links that also underpin the bank’s credit standing.
As a G-SIB, CCB has a substantial TLAC shortfall to meet by 1 January 2028, whereas meeting the 1 January 2025 requirement appears manageable. It has announced a proposal to issue up to RMB 50 bn of TLAC bonds this year.
Key Metrics
AS OF 24 May 2024RMB bn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPOP ROA | 1.96% | 1.87% | 1.66% | 1.44% | 1.54% |
Reported ROA | 1.02% | 1.04% | 1.00% | 0.91% | 0.89% |
Reported ROE | 12.1% | 12.6% | 12.3% | 11.6% | 11.6% |
Equity/Assets | 8.4% | 8.6% | 8.3% | 8.2% | 8.2% |
CET1 Ratio | 13.6% | 13.6% | 13.7% | 13.1% | 14.1% |
NPL Ratio | 1.56% | 1.42% | 1.38% | 1.37% | 1.36% |
Provisions/Average Loans | 1.19% | 0.95% | 0.77% | 0.61% | 0.79% |
Loan-Deposit Ratio | 81% | 84% | 85% | 86% | 85% |
CreditSights View
AS OF 11 Jul 2024CCB is the 2nd-largest of the Chinese state-owned commercial banks and benefits from a strong franchise and close state links. It has the second strongest capital ratios among Chinese banks, just behind ICBC. Its profitability has recently been impacted by its social duties to support the real economy including stepping up lending at lower rates, but we do not regard such actions as credit-negative as they reflect the close government links that also underpin the bank’s credit standing. Profits declined YoY in 1Q24 due to lower core topline revenues on NIM compression and lower fee income. Due to China’s weaker macro outlook, challenging prospects for the sector, and tighter spreads compared to elsewhere in Asia, we have an Underperform recommendation on the bank.
Recommendation Reviewed: July 11, 2024
Recommendation Changed: August 22, 2023
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