[Huachuang Financial Xu Kang Team] Bank of Communications 2025: Strong interest margin resilience, core revenues all achieved positive growth

(Source: Xiaokang Finance)

Matters:

Bank of Communications has released its 2025 annual report. In 2025, it recorded operating income of RMB 265.071 billion, up 2.02% year over year; net profit attributable to shareholders was RMB 95.622 billion, up 2.18% year over year. The NPL ratio was 1.28%, up 2 bps quarter over quarter; the allowance coverage ratio was 208.4%, down 1.6 percentage points quarter over quarter.

Comments:

Revenue growth remained steady and improved further, with core income all achieving positive growth; allowance provisioning stayed prudent, and the growth rate of net profit attributable to shareholders increased. 1) Revenue side: In 2025, operating income grew 2.02% year over year, with the growth rate improving by 0.22 percentage points compared with the first three quarters. First, benefited from net interest margin stabilizing, full-year net interest income increased 1.91% year over year; second, fee-based business performance exceeded expectations. Full-year net fee and commission income increased 3.44% year over year, far higher than the 0.15% growth rate in the first three quarters. This was mainly driven by the wealth management business (+16.98%) and agency-related business (+10.17%). In addition, other non-interest income still maintained positive growth (up 1.4% for the full year). 2) Profit side: Based on the improvement in operating income, the company’s net profit attributable to shareholders recorded positive growth of 2.18% for the full year, with the growth rate rising by 0.3 percentage points compared with the first three quarters. Although the year-over-year increase in the provision for credit impairment losses was 3.77%, the effective tax rate declined due to the impact of tax-exempt income, offsetting part of the provisioning pressure.

Stable growth in scale, with corporate loans as the main driver, while retail credit growth slowed somewhat. At the end of 2025, the group’s total customer loans were RMB 9.12 trillion, up 6.64% year over year. The corporate segment is the growth engine. 1) Corporate side: The growth rate of corporate loans (including bills) in 2025 was 8.4%, accelerating versus the first three quarters. The company actively serves the real economy and optimizes the direction of credit allocation around the “Five Major Articles.” Loans to manufacturing increased by 13.8%, technology loans increased by 10.73%, inclusive small and micro loans increased by 20.76%, all significantly higher than the bankwide average loan growth rate. 2) Retail side: Retail loans increased by 3.00% year over year, with the growth rate slowing somewhat. Among them, personal consumption loans (+19.5%) and personal operating loans (+11.8%) maintained relatively fast growth, but due to weakness in residential market sales, the balance of mortgage loans declined by 1.65% compared with the end of the prior year. Credit card credit demand was also weaker, and the balance declined by 1.3% year over year. The company completed a targeted A-share placement of RMB 120 billion in June 2025. Its core tier-1 capital adequacy ratio rose to 11.43%, up 1.2 percentage points year over year. This capital replenishment effectively eased the long-standing issue of capital constraints, providing a solid guarantee for sustainable growth in future business scale.

Net interest margin stabilized for three consecutive quarters, the decline in asset-side yields narrowed, and the effectiveness of liability-cost management was significant. The bank’s net interest margin for 2025 was 1.20%, down only 7 bps year over year. Judging from quarterly data, since the second quarter of 2025, the single-quarter net interest margin has been stable in the 1.19%–1.22% range for three consecutive quarters, showing a clear stabilization trend. 1) Asset side: Enhanced asset-side pricing capability. We estimate that the full-year 4Q25 single-quarter yield on interest-earning assets declined by only 5 bps quarter over quarter to 2.80%, with a narrower decline than in the first three quarters. 2) Liability side: The company’s liability-cost management was effective. We estimate that the 4Q25 single-quarter cost ratio of interest-bearing liabilities declined by 9 bps quarter over quarter to 1.67%, which is higher than the decline in asset-side yields, thereby making a positive contribution to net interest margin stabilization. With the continuous repricing of deposits that carry higher interest rates upon maturity, we expect further room for liability costs to decline in 2026, which will provide strong support for net interest margin stability.

Corporate asset quality is improving, while retail risk has been somewhat disturbed. In 2025, the NPL ratio was 1.28%, up 2 bps quarter over quarter, and the estimated single-quarter net NPL generation rate increased by 3 bps quarter over quarter to 0.52%. The watch rate (1.65%) and delinquency rate (1.46%) rose by 9 bps and 6 bps respectively quarter over quarter, indicating that asset quality still faces certain potential pressure. 1) Corporate side: Ongoing clearance of corporate risks. The company’s NPL ratio for corporate loans was 1.19%, down 11 bps from the first half of the year, and asset quality continued to improve. Of note, the NPL ratio for real-estate-related industry loans fell to 4.20%, down 12 bps from the first half of the year, showing significant risk resolution effectiveness. 2) Retail side: Affected by the macro environment, the NPL ratio for personal loans rose by 24 bps from the first half of the year to 1.58%. Specifically, the NPL ratios for personal housing loans/credit cards/consumer loans/personal operating loans increased by +26 bps/-29 bps/+63 bps/+39 bps from the first half of the year to 1.01%/2.68%/1.77%/1.94%, respectively. Pressure on retail asset quality is a common industry issue. Management stated that it has taken multiple measures to strengthen risk controls, striving to reverse the downward trend.

Investment recommendation: Slightly.

Risk warning: Insufficient economic growth momentum will further pressure banks’ net interest margins. Bank credit growth and lending deployment will fall short of expectations.

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