Citibank: Bank of China (03988)'s operating profit before preparation for the third quarter was resilient compared to expected net interest spreads and handling fee revenue

The Zhitong Finance App learned that Citibank released a research report saying that Bank of China (03988)'s operating profit surpassed expectations before preparing for the third quarter. Net interest spreads and handling fee revenue were resilient, maintaining a “buy” rating, with a target price of HK$6.58.

The Bank of China announced that operating profit for the first nine months of 2026 rose 11.6% year on year to 341 billion yuan, and profit increased 5.5% year over year to 187.5 billion yuan, equivalent to 73% of the market forecast for the full year 2026. Operating profit for the third quarter rose 15.6% year on year to RMB 110.6 billion, better than the 12.3% year-on-year increase in the second quarter. It was mainly driven by improved cost efficiency, but transaction revenue was pressured; profit for the third quarter rose 6.4% year on year to 63.9 billion yuan, which was slower than operating profit before provision, mainly due to the increase in actual tax rates.

The bank pointed out that positive factors include the cost-revenue ratio falling 6.4 percentage points year on year to 34.8% year on year in the third quarter, revenue up 4.3% year on year, and operating expenses falling 11.9% year on year; handling fee revenue was resilient, falling 2% year on year in the third quarter, accounting for 10.9% of revenue. In terms of asset quality, the non-performing loan ratio fell slightly by 1 basis point quarterly to 1.22%, and credit costs in the third quarter were 0.45%. In terms of negative factors, loan growth slowed, rising 1.3% quarterly and 7.1% year-on-year in the third quarter; net interest spreads falling 1 basis point quarterly to 1.27%; and transaction revenue in the third quarter fell 30.5% year-on-year.

The bank believes that third-quarter earnings were broadly in line with expectations. Although the Bank of China holds the lowest share of Changxin Technology (688825.SH) among the largest banks and has the fewest earnings in terms of market value due to the rise in Changxin Technology's stock price, it still recorded a marked acceleration in operating profit growth before provision, supported by core business such as net interest spreads and handling fee revenue, which is a positive surprise. Looking ahead, the bank expects the Bank of China to benefit from continued Chinese export momentum and the US interest rate hike cycle due to its strong overseas and international business network.