China Merchants Bank stands out thanks to its leading position in retail banking business and enviable funding costs advantage, which delivers one of the strongest returns on assets among peers. We believe strong returns and competitive advantages endow it with a narrow economic moat.
CMB’s long time focus on customer-oriented strategy rewards the bank a premium customer base and a strong brand reputation as a wealth manager. The bank is progressing well with its digital customer acquisition strategy via the online channel that is seeing strong growth in the number of customers in the upper-middle class and their assets under management, or AUM. The bank enjoys one of the highest user penetration rates in the industry. CMB mobile application contributed 98% of total wealth management customers and 84% of transactions in the first half of 2021.
China Merchants Bank’s or CMB’s first-half results reported strong year-on-year growth in both total revenue and net profit at 14% and 23%, respectively. Positives include stable cost/income ratio and lower-than-expected credit costs in the second quarter, along with strong revenue growth and continuous improvement in credit quality as well as substantial customer base and strength in fee-based business. Fee income growth further expanded to 24% year on year, led by 40% and 17% growth in agency sales of financial products and of custody services. These two categories accounted for over 55% of total fee income. Credit card-related and credit business related fee income remained weak at zero and 5% growth, but this is reflective of weak service consumptions due to COVID-19 prevention and control measures.
Financial Strength
The bank boasts stable funding, as customer deposits represent 74% of total liabilities. CMB has improved its capital strength over the past three years: The equity/assets ratio increased to 8.7% by 2020, thanks to improving capital efficiency. Its core Tier 1 capital ratio and capital adequacy ratio reached 12.3% and 16.5%, respectively, by 2020. CMB has recorded a healthy capital position and strong returns, as evidenced by an average of over 16% return on equity over the past five years.
Bulls Say
- CMB expects to add 15 million, or 10% of its 160 million customer pool, over the next three years. We expect this to support its industry-leading fee income growth and funding costs in the future.
- With monthly active users reaching over 105 million, CMB’s two mobile applications were among the most popular banking app in China.
- CMB’s retail banking business boasts the largest retail AUM per customer, which is more than two times that of its closest competitors in China.
Company Profile
With headquarters in Shenzhen, China Merchants Bank was founded in 1987. The bank is China’s seventh-largest listed bank by assets, with the largest distribution network among China’s joint-stock banks. CMB’s network is expanding rapidly. Its outlets are located mainly in China’s more developed areas, such as the Pearl River and Yangtze River deltas. The firm has 18% and 82% of its shares listed on the Hong Kong and Shanghai exchanges, respectively. It has no foreign strategic investors. China Merchants Group is its largest shareholder, with a 30% stake. Retail banking, corporate banking and wholesale banking accounted for 52%, 45%, and 3% of total profit before tax, respectively, and 54%, 42%, and 4% of total revenue in 20220.
(Source: Morning Star)
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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
