China Merchants Bank Co., Ltd. Q3 FY2026 earnings call

• Financial Stability & Efficiency: The bank achieved steady growth in revenue and profit, outpacing the first half’s growth rates. ROAA and ROAE remained industry-leading, supported by a declining cost-to-income ratio and robust capital generation capacity.
• Asset & Liability Management: Total assets grew 5.28% to CNY 13.76 trillion. Corporate loans expanded significantly by 10.59% to CNY 3.56 trillion, offsetting a 1.28% decline in retail loans due to sluggish consumer demand. Customer deposits increased 4.3% to CNY 10.26 trillion, with demand deposits stabilizing at 49.75% of daily average balance.
• Net Interest Margin (NIM): NIM stabilized at 1.82% in Q3, flat quarter-on-quarter. This was driven by narrowing declines in asset yields and falling liability costs. The bank emphasized balancing volume, quality, and pricing to maintain its industry-leading absolute NIM level despite downward pressure.
• Wealth Management Growth: Retail AUM surged 9.52% to CNY 18.71 trillion. The customer base expanded, with Golden Sunflower+ customers up 9.63% to 6.50 million. Income from extended wealth management grew 11.12%, driven by strong fee income from funds, trusts, and custody services.
• Risk Management: Asset quality remained stable with an NPL ratio of 0.94%. Provisioning was prudent, resulting in an allowance coverage ratio of 389.39%. The bank highlighted stricter risk classification standards, particularly for Special Mention Loans (SML), reflecting proactive risk identification rather than deterioration.
• Strategic Focus: Management reiterated commitment to the 'Value Creation Bank' strategy, focusing on extensive wealth management, technology finance, cross-border finance, and intelligent banking. The goal is to build a 'fixed income plus' business model for greater resilience.

The Group reported a Net Operating Income of CNY 264.76 billion, up 5.37% year-on-year, and a Net Profit attributable to shareholders of CNY 116.476 billion, up 2.38% year-on-year. The bank maintains high profitability metrics with an ROAA of 1.16% and an ROAE of 13.49%. Cost-to-income ratio improved to 29.24%, down 0.62 percentage points year-on-year. Capital adequacy ratios remain strong under the advanced measurement approach: CET1 at 14.38%, Tier 1 at 16.88%, and Total Capital Adequacy at 18.64%. Net Interest Income (NII) contributed CNY 169.379 billion, up 5.83%, while Net Non-Interest Income reached CNY 95.385 billion, up approximately 4.29%, maintaining a significant share of total operating income.

• NIM Outlook: Management expects continued downward pressure on NIM due to potential LPR cuts, lower bond yields, and limited room for further deposit cost reductions. However, they aim to narrow the annual decline and keep the absolute NIM level leading the industry.
• Loan Growth: Retail loan growth is expected to remain sluggish due to weak consumer and housing demand. Corporate loan growth is anticipated to continue but at a moderated pace, shifting focus toward quality over quantity.
• Profitability: The bank targets stable, high-quality profit growth, balancing operating efficiency, prudent provisioning, and shareholder returns. They aim to maintain high ROAA/ROAE and a consistent dividend payout ratio.
• Capital Management: The bank intends to achieve endogenous capital growth without relying on market fundraising, using internal profits to support CAR ratio maintenance above regulatory requirements.
• Customer & AUM: Continued solid growth in customer base and AUM is expected, serving as the foundation for long-term resilience and wealth management income growth.

• Retail Credit Risk: Retail NPLs rose by 0.11 percentage points to 1.19%, driven by over-indebtedness and investment income volatility. While risk accumulation is showing marginal stabilization, the upward trend remains a concern.
• Special Mention Loans (SML): SMLs increased, primarily in the retail sector, due to stricter classification criteria and proactive risk warning measures rather than immediate credit deterioration.
• Corporate Sector Risks: Leasing and commercial service sectors saw an increase in NPLs (CNY 1.3 billion rise), though this represents a small proportion (8%) of total corporate loans. The property sector remains sensitive, with developers facing liquidity issues and slowing land procurement.
• Interest Rate Environment: Persistent low-interest rates and potential policy rate shifts (DR001 vs. LPR) create pricing pressure and reduce net interest margins. Volatility in capital markets also impacts fee-based income.
• Asset Quality Volatility: External economic complexities and quarterly fluctuations in capital markets pose ongoing challenges to asset quality and risk compensation capacity.

Q: Analyst from CICC asked if CMB's improving QoQ performance indicates long-term adaptation to the complex environment, specifically regarding NIM stability and asset quality trends for next year.

A: Executive confirmed that improvements are structural, driven by refined asset-liability management and customer-centric strategies. They noted that while NIM faces downward pressure from macro factors, it has stabilized sequentially. Future operations will prioritize asset quality and efficiency over scale, with loan growth normalizing to lower rates. The bank expects stable performance through wealth management expansion and technological innovation, aiming for balanced growth despite external headwinds like low interest rates and capital market volatility.

Q: Analyst from Guotai Haitong asked if NIM has entered a stable interval, given the flat Q3 result, and requested details on the drivers behind this stability.

A: Li Li explained that Q3 NIM stability resulted from offsetting 2bps declines in both asset yields and liability costs. Demand deposit growth helped lower funding costs, while refined asset management narrowed yield declines. However, she cautioned against assuming full stabilization, citing potential LPR cuts and lower bond yields as ongoing pressures. The bank will focus on precise asset-liability management, emphasizing volume, quality, and pricing to maintain an industry-leading absolute NIM level.

Q: Analyst from HSBC asked about the impact of the PBOC’s shift to DR001 as the main policy rate on loan pricing and the progress of this transition.

A: Li Li detailed that the PBOC is shifting from LPR to DR001 as the primary benchmark, affecting large corporates more than retail clients. CMB launched its first DR001-based loan in July and has over 20 such deals. While DR001 volatility is higher and currently low, causing short-term downward pressure on pricing, the impact is limited as adoption is gradual. The bank is actively hedging and matching assets/liabilities to manage interest rate risk, viewing this diversification as a key milestone in interest rate liberalization.

Q: Analyst from Morgan Stanley asked about the drivers of rising Special Mention Loans (SML) and the current state of retail loan risks, including when the peak might occur.

A: Risk executives clarified that SML increases stem from stricter classification standards and proactive risk warnings, not necessarily worse underlying quality. Retail risks are rising industry-wide due to real estate adjustments and over-indebtedness, but CMB’s NPL formation is slowing. The bank highlights structural advantages, with >90% of assets in safe regions/collaterals. Credit card and micro-loan risks are showing marginal stabilization. The bank maintains strict risk controls and adequate provisions, believing overall retail risk is controllable and leading the industry.

Q: Analyst from UBS asked about forward-looking profit growth expectations and how the bank balances provisioning against profit release, noting slower profit growth relative to operating income.

A: An executive explained that profit growth lags operating income due to prudent provisioning driven by rapid corporate loan growth (CNY 301B+) and rising retail asset risks. Despite this, ROAE and coverage ratios remain balanced. The bank aims for high-quality profit growth by maintaining healthy operating income, prudent provisioning, and stable shareholder returns. They emphasize balancing ROAE, CAR, and dividend payout ratios, prioritizing sustainable, endogenous capital growth and consistent dividends over volatile payouts, ensuring long-term shareholder value creation.