Consensus earnings forecasts for China banks possibly understated

Major discrepancy could come from asset quality.

It has been noted that consensus earnings forecasts for China banks could be understated, with most H-share banks expect their net profit growth to exceed 10% YoY in 2014.

According to a research note from Maybank Kim Eng, this is higher than Bloomberg consensus (net profit growth of below 10% YoY).

The report noted that it believes the major discrepancy will come from asset quality as most H-share banks see their credit costs remaining stable in 2014 given conservative loan classification and provisioning policy and selective loan growth in previous years.

Meanwhile, competition for deposits remained severe among banks and from Yue’bao and Licaitong, and that recent liquidity relaxation in the banking system should help moderate the rise in funding costs.

Here’s more from Maybank Kim Eng:

Still, most banks have passed on the rising funding costs to loan customers through an increase in lending spreads and/or loan advisory fees.

Hence, total revenue growth of most banks should remain solid in 2014.

Remain strong yield plays. Nearly all H-share banks indicated they do not need to replenish their equity capital in 2014-15.

Their internal capital generation should be sufficient to support stable loan growth and dividend payout ratios of 30-35%.