工商银行:High fundamental stability as core strength

Lower risk buffers to increase earnings. To raise support for the real economy, the government encourages big banks to reduce risk buffers, based on an announcement on Apr 13, 2022. So far, the said request has not been mandatory but we believe major banks, including ICBC, would take steps to fulfill its social responsibility. As such, we factor in a -2% CAGR in the bank’s provision expenses over FY21-24E, which would gradually reduce the bank’s provisioning ratio and provision coverage ratio to 2.78% and 187.84% by end-24E. Nevertheless, in view of rising asset quality risk from the property sector, we project the bank’s NPL ratio to inch up by 1bps-3bps YoY each in FY22E-24E and reach 1.48% by FY24E, assuming the scale of NPL handling remains similar. More NIM pressure to come. Resurgence of interest rate cut cycle from Dec 2021in China would once again elevate NIM pressure in banks. Despite declining deposit rates, we expect loan re-pricing would delay the impact of interest rate cut by a few quarters, we forecast ICBC’s NIM to narrow by 2bps-5bps YoY each in FY22E-24E to 2.02% by FY24E. In our opinion, its robust total assets and total liabilities CAGRs at 6.0% and 5.8% in FY21-24E would defend the bank against NIM pressure and support NII CAGR at 5.3% in FY21-24E. CIR on the rise. To maximize the bank’s competitive edge in big data, we forecast FinTech investments would continue in coming years. By keeping technology-related expenses at ~3% of its topline revenue, we anticipate CIR to rise mildly to 29.29% by 2024E; operating expenses would increase at 11.2% CAGR over FY21-24E