Guosen: Listed banks' performance marginally improve, expected to reach the end of the performance cycle in 2025.

Guosen released a research report stating that in 2024, the combined revenue of 23 listed banks decreased by 0.6% year-on-year, while the net profit attributable to the parent company increased by 1.8% year-on-year. The growth rate increased by 1.0 percentage points compared to the previous three quarters, showing marginal improvement in performance. The narrowing of net interest margin remains the main drag, but the decrease in percentage points year-on-year narrowed by 0.8; at the same time, banks are releasing profits by lowering provisions, combined with slowing asset quality pressures, it is expected that 2025 will mark the end of this round of performance decline cycle, with net profit attributable to the parent company's growth rate possibly remaining around 1%. Guosen's key points are as follows: Overall Review: Revenue and net profit growth continue to improve, but still under pressure The 23 listed banks that have disclosed their annual reports for 2024 saw a year-on-year decrease in revenue of 0.6% and a year-on-year increase in net profit attributable to the parent company of 1.8%. The growth rate improved compared to the previous three quarters. Detailed Analysis of Driving Factors: Net interest margin remains the biggest drag, but the decrease is narrowing; continuing to release profits by lowering provisions The key drivers of net profit growth in 2024 are analyzed as follows: (1) The narrowing of the net interest margin in 2024 dragged down performance by approximately 11.1%, while the growth brought about by scale expansion accounted for about 8.7% of the total. Therefore, net interest income decreased by about 2.3%, with the decrease in the narrowing percentage points year-on-year by 0.8. (2) Fee-based net income dragged down performance by about 1.1%, while other non-interest income contributed to a growth of about 2.8%. (3) The decrease in asset impairment losses contributed to a growth of 2.9% in performance. Asset Quality Outlook: Retail non-performing loans are expected to continue to fluctuate at high levels in 2025, with a turning point expected in 2026 In 2024, the non-performing loan generation rate of listed banks showed signs of improvement, but overall delinquency rates indicate that asset quality is still under pressure. The increase in non-performing balances in 2024 mainly came from retail loans, while non-performing loans in the corporate sector saw a double decrease. The main reasons for the exposure of retail non-performing loans are the economic downturn leading to a decrease in repayment ability, and some banks' insufficient risk assessment and post-loan management due to the increase in personal operating and other retail loans over the past few years. With current cautious bank lending practices and continued efforts towards stable growth policies, it is expected that the economy will steadily recover and improve. Guosen predicts that the retail non-performing loans may reach a turning point in 2026. Performance Outlook: 2025 is expected to be the end of this round of performance decline cycle It is projected that the revenue growth of listed banks in 2025 will be around -1%, with the net profit attributable to the parent company growing by around 1%. In the current environment protecting net interest margins, calculations show that the net interest margin of listed banks is expected to narrow by about 12bps in 2025. Due to factors such as debt replacement, the pace of asset expansion will slow to around 7.0%, resulting in a narrowing of net interest income to around zero in 2025. However, fee-based net income continues to be under pressure, while market volatility leads to a significant decrease in other non-interest income contribution. Overall, it is predicted that there will be a slight negative revenue growth in 2025. Retail loan non-performing loans are expected to remain high in 2025, but considering the negative revenue growth, banks will continue to release profits by lowering provisions, leading to a decrease in provision coverage and maintaining a slight positive growth in net profit. Risk Warning If there is a significant macroeconomic downturn, it may affect the banking industry in various ways, such as net interest margins and asset quality.