Key Takeaways:
Shares of China Merchants Bank (03968.HK) fell 4.6 percent after a Goldman Sachs report highlighted a 20 percent jump in credit card non-performing loans in the first quarter.
The bank's first-quarter pre-provision operating profit and net profit were 3 percent and 5 percent below the broker’s expectations, respectively, Goldman Sachs said in a note to clients.
The weaker-than-expected performance was attributed to slower growth in fee income, a 7 percent year-over-year decline in investment income, and continued net interest margin (NIM) compression. The overall non-performing loan formation ratio rose 8 basis points from the prior year to 1.08 percent, driven primarily by the deterioration in credit card debt.
"Although the customer base remains relatively high quality, the trend warrants attention," the report stated, pointing to the sharp increase in souring credit card loans as a key risk factor for the lender.
Despite the earnings miss and rising credit risks, Goldman Sachs maintained its Buy rating on the bank. The firm trimmed its profit forecasts for China Merchants Bank by 1 percent for the 2026 to 2028 period to reflect the weak first-quarter results.
The price target was held at HKD52.86. The report noted that short-selling activity in the stock represented over 40 percent of total volume on Tuesday.
The results show the pressure on Chinese lenders as the economic environment affects consumer credit quality. Investors will be watching the bank's next earnings release for signs of stabilization in its credit card portfolio.
This article is for informational purposes only and does not constitute investment advice.
