Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Equity Bottom-Up

Bank Of Ningbo Co Ltd A / Equity Bottom-Up

<ul>
<li>Bank of Ningbo saw its margins decline dramatically from 1.79% to 1.55% from 3Q22 to 3Q23. This is of concern for earnings power in coming quarters. </li>
<li>The bank's loan-to-deposit ratio (LDR) is now down to 73% from 78% YoY which tends to act as a dampener on NIM and core income. </li>
<li>Credit metrics are worsening with NPLs up from RMB7.9bn to RMB9.3bn YoY in 3Q23. This rise is not easily visible in the NPL ratio due to rising total loans. </li>
</ul>


Bank of Ningbo saw its margins decline dramatically from 1.79% to 1.55% from 3Q22 to 3Q23. This is of concern for earnings power in coming quarters. 
The bank's loan-to-deposit ratio (LDR) is now down to 73% from 78% YoY which tends to act as a dampener on NIM and core income. 
Credit metrics are worsening with NPLs up from RMB7.9bn to RMB9.3bn YoY in 3Q23. This rise is not easily visible in the NPL ratio due to rising total loans. 


Bank of Ningbo - 24bps NIM Decline, Lower LDR, 18% Higher NPLs

China Construction Bank H / Equity Bottom-Up

<ul>
<li>The large SOE bank indicates that it will list its housing rental subsidiary, although the proceeds may be inconsequential given the size of CCB.</li>
<li>CCB shows lower (and very low) credit costs despite what appears to be a major weakening in its NPL distribution.</li>
<li>Loss NPLs are up 2.5x from FY19 to 1H23 much more than its 1.5x rise in total NPLs, so that its declining and benign credit costs may not last.</li>
</ul>


The large SOE bank indicates that it will list its housing rental subsidiary, although the proceeds may be inconsequential given the size of CCB.
CCB shows lower (and very low) credit costs despite what appears to be a major weakening in its NPL distribution.
Loss NPLs are up 2.5x from FY19 to 1H23 much more than its 1.5x rise in total NPLs, so that its declining and benign credit costs may not last.


CCB- Housing Rental Subsidiary Listing May Be Overshadowed By Weak Credit Metrics

<ul>
<li>Even the company itself shows in its recent presentation that a substantial portion of its revenue growth was due to rising rates on its cash deposit balances. This should wane. </li>
<li>The company's effective tax rate moved from 14% in the past few years, when it was stable to 10% in most recent period, this is not a core positive attribute. </li>
<li>Geopolitical risk, economic malaise in both Hong Kong and China, can lead to less interest in the market, trading, placements, perhaps suggesting its 6x PB is not warranted?</li>
</ul>


Even the company itself shows in its recent presentation that a substantial portion of its revenue growth was due to rising rates on its cash deposit balances. This should wane. 
The company's effective tax rate moved from 14% in the past few years, when it was stable to 10% in most recent period, this is not a core positive attribute. 
Geopolitical risk, economic malaise in both Hong Kong and China, can lead to less interest in the market, trading, placements, perhaps suggesting its 6x PB is not warranted?


Hong Kong Exchanges - Key Earnings Delta Was Rising Rates, Net Profit Inflated from Lower Taxation

Thematic (Sector/Industry)

<ul>
<li>There may be overly optimistic expectations for BOC HK's credit costs, which have been relatively benign for many years. </li>
<li>Worsening economic developments in Hong Kong and China suggest that BOC HK will show a dramatic deterioration in credit metrics in coming interim results. </li>
<li>Loan growth in Hong Kong is now hitting zero and funding cost growth has been extravagant, making for a poor combination to net interest income. </li>
</ul>


There may be overly optimistic expectations for BOC HK's credit costs, which have been relatively benign for many years. 
Worsening economic developments in Hong Kong and China suggest that BOC HK will show a dramatic deterioration in credit metrics in coming interim results. 
Loan growth in Hong Kong is now hitting zero and funding cost growth has been extravagant, making for a poor combination to net interest income. 


BOC HK - Credit Costs Have Flat Lined for Years, a Blow Out in 2H23 or 1H24 Can Be a Shock

<ul>
<li>There is little in the long-term and current figures of <a href="https://www.smartkarma.com/entities/bank-of-china-ltd-h" target="_blank" data-smartkarma-citation="entities:656:1" rel="noopener">Bank Of China Ltd (H) (3988 HK)</a> that leaves one assured of strength, stability, earnings power, and rather the opposite.</li>
<li>Sharply expanding LDR is an increase in loans relative to deposits, and it tends to drive rising NIM. Where LDR expands (a lot) but NIM contracts, it is a concern. </li>
<li>The bank appears to have a 2-3x higher base of credit costs/operating profit, with an ROE of 10% now vs 18% some years ago - with much more geopolitical risk. </li>
</ul>


There is little in the long-term and current figures of Bank Of China Ltd (H) (3988 HK) that leaves one assured of strength, stability, earnings power, and rather the opposite.
Sharply expanding LDR is an increase in loans relative to deposits, and it tends to drive rising NIM. Where LDR expands (a lot) but NIM contracts, it is a concern. 
The bank appears to have a 2-3x higher base of credit costs/operating profit, with an ROE of 10% now vs 18% some years ago - with much more geopolitical risk. 


Bank of China - Surging LDR, Falling NIM, ROE, with Higher Base of Credit Costs/Operating Income

Hong Kong

BOC Hong Kong (Holdings) Limited provides a comprehensive range of financial products and services to retail and corporate customers.  Its products include retail banking, corporate banking, and treasury services.  The Company operates its branches in Hong Kong and China.

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BOC Hong Kong (BOC HK) (2388 HK)

Bank of Ningbo - 24bps NIM Decline, Lower LDR, 18% Higher NPLs

Bank of Ningbo shows sharply lower NIM YoY with a declining LDR ratio, that can both means worsening core earnings power. High real estate loan...

Daniel Tabbush

CCB- Housing Rental Subsidiary Listing May Be Overshadowed By Weak Credit Metrics

CCB will list its subsidiary China Housing Rental although this may be small relative to the bank's total loans, and any benefits can be...

Daniel Tabbush

Hong Kong Exchanges - Key Earnings Delta Was Rising Rates, Net Profit Inflated from Lower Taxation

Hong Kong Exchanges shows that much of its profit was due to rising rates on it cash deposits, and this can reverse. Lower taxation inflates...

Daniel Tabbush

BOC HK - Credit Costs Have Flat Lined for Years, a Blow Out in 2H23 or 1H24 Can Be a Shock

BOC HK has seen credit costs flat line for some years, possibly making it appear as though this bank does not experience credit cycles. Long term...

Daniel Tabbush

Bank of China - Surging LDR, Falling NIM, ROE, with Higher Base of Credit Costs/Operating Income

BOC has seen LDR expansion accompanied by narrowing NIM, raising questions on marginal lending. ROE is worsening dramatically, with credit costs...

Daniel Tabbush

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