Bank of Ningbo Seen Thriving Despite Chinese Lenders’ Struggles

(Bloomberg) -- China’s banks are grappling with slower profit growth, narrower margins and a rise in bad loans -- but one regional lender is thriving despite the challenges.

Bank of Ningbo Co. recently reported a net income increase that outstripped its peers, and has a nonperforming loan ratio lower than any of its publicly traded rivals. The lender, whose shares have risen 43% since January, could see its stock gain even more thanks to a positive outlook for the rest of the year, analysts say.

It’s a rare bright spot in an industry that’s been hit with a slowing economy and government pressure to lend more to riskier clients while charging lower fees. Bank of Ningbo has managed to prosper due to good management and also a growing focus on retail banking, said UOB-Kay Hian Holdings Ltd. analyst Wang Zhen.

“Bank of Ningbo is the absolute leader among China’s city commercial banks,” said Wang, who also cited the company’s track record of superior asset quality.

Investors have been concerned about China’s smaller banks ever since the shock government takeover of Baoshang Bank Co. in late May. That sent borrowing costs for the lower-rated ones soaring, while the MSCI China Banks Index has fallen 8.4% over the period.

Bank of Ningbo’s success is due to “optimization in loan structure and improvement in risk management,” according to China International Capital Corp. analysts led by Shuaishuai Zhang.

The lender is the second-best performer among China’s listed banks, after Ping An Bank Co. which has risen 54% this year.

Profit at Bank of Ningbo rose 20% in the first half as it widened net interest margin quarter on quarter. With another 20% in earnings growth expected next year, its book value is 1.5 times 2019 forecasts, versus the sector average of 0.8.

Even so, analysts tracking the stock expect a return of 8.3%, on average, over the next 12 months.

“The shares may rise at a slower pace as its valuation is a bit stretched at the moment,” said UOB’s Wang. “But its asset and profit growth is yet to approach the ceiling.”

To contact Bloomberg News staff for this story: Jin Ye in Shanghai at jye141@bloomberg.net;Jun Luo in Shanghai at jluo6@bloomberg.net

To contact the editors responsible for this story: Candice Zachariahs at czachariahs2@bloomberg.net, Sam Mamudi, Katrina Nicholas

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With assistance from Bloomberg