CMBC’s Weak Deposit Base Suffered Amid Intensifying Deposit Competition and Tightened Regulations

No-moat China Minsheng Bank Corp.'s, or CMBC's, third-quarter results reflected significant headwinds in the bank’s net interest margin, or NIM, as the bank struggled to derisk its loan book amid rising property risks and weakening credit demand. We believe the current economic environment is not favorable for banks such as CMBC. The bank has relatively high on-balance-sheet and off-balance-sheet exposures to property and local government financing sectors. Nine-month total revenue and net profit contracted 8.9% and 4.9%, respectively, from the year-ago period. As net profit growth was on track to deliver our full-year estimate of around 10% year-on-year decline, we retain our fair value estimate at CNY 4.00 per A-share and HKD 4.50 per H-share. H-shares are trading at a historical trough of below 0.3 times 2021 price/book value. Despite its cheap valuation, we believe the bank has higher uncertainties, given its weak deposit base and the risky corporate and retail loans as evidenced by its higher-than-peer NPL formation rate and retail NPL ratio.