Bank of Communications:A modest beat on credit costs

Event

BoCom’s 1Q16earnings (+32% QoQ / +0.5% YoY) achieved 52% of our1H16forecast, largely due to lower-than-expected credit costs. This is slightly(1–2ppt) ahead of normal seasonilty in recent years.

Impact

Weak top line, low provisions, again. NIMs on total average assets tightenedagain (-15bp QoQ) to 1.87%, so net interest income (-6.0% QoQ / -2.8% YoY)underperformed our forecast despite sequentially very strong (+4.5% QoQ) loangrowth.

But BoCom delivered modest PPOP growth anyway on non-interestincome (+33% QoQ / +23% YoY) and cost control (-19% QoQ / +0.9% YoY).

Credit costs were low. NPLs rose 7% QoQ / 28% YoY, and the NPL ratioreached 1.54% (+3bp QoQ / +24bp YoY). BoCom did not join some of itslarge-cap peers that have let coverage fall to below 150%, as its LLR at 1Q16stood at 151%. Credit costs to total assets were 38bp (-4bp QoQ / +4bp YoY).