The Zhitong Finance App learned that UBS released a research report saying that Bank of Communications (03328)'s strong increase in operating profit before provision supported profit in the third quarter. The performance was close to the top of the industry, maintaining a “buy” rating and target price of HK$10.25.
The net profit growth of Bank of Communications accelerated to 10.1% year-on-year in the third quarter, higher than the average of the six major banks of 8.6%. Performance is supported by strong core revenue and strict cost control.
The bank pointed out that net interest income for the third quarter rose 10.8% year on year, 1 percentage point faster than the industry average; net handling fee revenue fell 6% year on year, less than 7.5% of the industry average; other non-interest income rose 18.1% year on year, mainly driven by a 60.1% increase in net transaction income, which included revenue related to Changxin Storage. Operating expenses fell 3.7% year on year, but impairment provisions increased 22.7% year over year, partially offsetting strong profit growth before provision. The bank estimates that credit costs rose 8 basis points to 55 basis points year on year, the highest of the six major banks, and is still a major constraint on future profit growth.
The bank estimates that the net interest spread for the third quarter improved by 1 basis point quarterly and 7 basis points year on year; the net interest spread reported for the first nine months was 1.24%, up 4 basis points year on year, but it was still the lowest of the six major banks. The non-performing loan ratio fell 1 basis point quarterly to 1.29%; provision coverage fell from 210% in the third quarter of 2025 to 200.1% in the third quarter of 2026; the core Tier 1 capital adequacy ratio increased by 10 basis points quarterly to 11.35%, which is still below the average of the six major banks of 12%. The bank expects the market to respond slightly positively to the results.