Goldman Sachs has issued a research report summarizing six key observations on ICBC (01398). The investment bank expects the bank's net interest margin to remain broadly stable and sees signs of new loan pricing stabilizing. It maintains a "Neutral" rating on the H-shares with a target price of HK$8.02.
On net interest margin, ICBC's net interest spread edged up 1 basis point in the first three quarters of this year compared to the start of the year, mainly benefiting from lower deposit costs and support for overseas margins from a stronger US dollar and euro exchange rate. Management expects about 1 basis point of pressure on net interest margin in the fourth quarter of 2026, primarily from the gradual repricing of bond assets. Looking ahead to 2027, the full-year decline in net interest margin is projected to be less than 5 basis points.
On the loan business, the average yield on new RMB loans was 2.63% in the first three quarters, down 12 basis points year-on-year, but the decline has narrowed by 4 basis points. Management noted that the after-tax yield on new loans is roughly on par with the existing loan portfolio, with mortgage and other retail loan pricing relatively stable, while corporate and inclusive finance loans saw moderate declines. As of the end of September, domestic RMB loans grew 5.6% year-on-year, and management expects full-year growth of about 6%. Loan growth in 2027 will be slightly lower than in 2026 but still above the average of the overall banking system.
On asset quality, the balance of corporate non-performing loans at ICBC has declined for several consecutive quarters. Non-performing mortgages are mainly concentrated in earlier vintage loans, while migration rates and default rates on personal loans have improved, and credit card non-performing balances, non-performing loan ratios, and overdue situations have also declined in tandem. Business loans are largely collateral-backed, with risks concentrated in Guangdong, developed coastal regions, and major cities.
Regarding local government financing vehicles (LGFVs), liquidity has improved since financial support was obtained in 2023. ICBC remains prudent toward lower-tier LGFVs and state-owned enterprises, with limited new lending in the first three quarters of this year. In the real estate business, the balance of new mortgage loans has continued to decline, with second-hand home loans accounting for more than 50% of newly originated mortgages. Early repayments in the first three quarters fell 4.6% year-on-year, and the early repayment ratio was nearly 9 percentage points lower than in 2024. Management believes recent policy support will gradually benefit second-hand home transactions, but prices in lower-tier cities have yet to stabilize, making a significant short-term rebound in mortgage demand unlikely.
On non-interest income and international business, financial investments account for about one-third of total assets, mainly bonds, and tax incentives on local government bonds help enhance after-tax returns. ICBC's wealth management client assets reached RMB 2.61 trillion, increasing by RMB 2.08 trillion or 8.7% this year. Management is gradually shifting from product sales toward account management, investment research, asset allocation, and long-term services. International financing demand remains concentrated in export-related industries, including new energy, machinery, electronics, and high-end manufacturing, with new business expanding from traditional US and European markets to ASEAN, the Middle East, and Latin America. As of the end of September, ICBC's foreign currency deposits (excluding financial institutions) had exceeded US$120 billion, increasing by more than US$20 billion this year, mainly from corporate clients.