Why has net profit growth slowed despite improved pre-provision profit?

  • In the first three quarters of 2026, Ping An Bank’s pre-provision profit rose 3.1% year on year, above the 2.7% recorded in the first half. However, year-on-year net profit growth fell from 3.3% in the first half to 2.2% in the first three quarters, with growth of just 0.2% in the third quarter alone.
  • Revenue grew faster than costs: operating revenue rose 2.5% year on year in the first three quarters, while operating costs increased 1.2%. However, total provision expenses rose 5.2% year on year. Bank of America believes provisioning pressure limited the translation of operating improvements into net profit.
  • Return on equity fell 0.3 percentage points year on year to 10.8% in the first three quarters, reflecting that profit growth had not brought a corresponding improvement in returns on shareholders’ capital.

Where did the revenue improvement come from, and what pressures did lending face?

  • Bond trading gains supported revenue: other non-interest income rose 15.2% year on year in the first three quarters, which Bank of America attributed to stronger bond trading gains in the third quarter. Bonds measured at fair value through profit or loss accounted for more than 40% of the bond portfolio.
  • Both margins and loan volumes came under pressure. The net interest margin fell 2 basis points quarter on quarter to 1.79% in the third quarter, mainly because interest accrual stopped on some overdue corporate loans. Deposit costs fell 5 basis points quarter on quarter, providing some support.
  • At the end of the third quarter, loans were up just 0.4% year on year and down 0.6% quarter on quarter. Corporate loans fell 2.3% quarter on quarter, retail loans fell 0.3%, and discounted bills rose 22.8%. Net fee income was flat year on year in the first three quarters, after growing 3.7% in the first half.

With the non-performing loan ratio stable, why is Bank of America still concerned about asset quality?

  • At the end of the third quarter, the non-performing loan ratio was stable at 1.05% both year on year and quarter on quarter, but the special-mention loan ratio rose 0.24 percentage points quarter on quarter to 2.07%, indicating that more loans had entered the category requiring special attention.
  • The overdue loan ratio rose 0.11 percentage points quarter on quarter to 1.59%; loans overdue by more than 90 days rose as a proportion of non-performing loans from 70% at the end of the second quarter to 83%.
  • The provision coverage ratio fell 4.8 percentage points quarter on quarter to 214.7%, while the loan provision ratio fell 5 basis points to 2.25%. Bank of America believes weakening risk indicators and a declining provision buffer together constrain earnings growth.

How did Bank of America adjust its assessment?

  • Bank of America downgraded Ping An Bank from Buy to Neutral, cut its earnings forecasts for 2026–2028 by 2%–5%, and lowered its price target from 13.41 yuan to 12.57 yuan.
  • The bank believes a recovery in revenue momentum, a stable non-performing loan ratio and an expected dividend yield of about 5.6% for 2026–2027 could provide downside support for the share price. Clearer evidence of a turning point in asset quality would be needed to drive a significant valuation re-rating.