Industrial Bank (601166.SS): Asia Financials Corporate Day Takeaways

Research evidence excerpt

Industrial Bank (601166.SS): Asia Financials Corporate Day Takeaways

Goldman Sachs Industrial Bank (601166.SS)

n For 1Q26, NIM contracted by 18bps YoY, driven by three primary factors.

o Firstly, industry-wide trends accounted for 7bps of the decline, stemming

from loan repricing and a general decrease in loan yields.

o Secondly, temporary asset structure factors contributed 5bps. This was due to

the bank’s robust interbank client base, which led to the absorption of

substantial surplus interbank liabilities in 1Q. Concurrently, the bank allocated

a larger proportion of lower-yielding interbank assets, resulting in a

temporary dilution of NIM. Industrial Bank has since initiated adjustments to

reduce these low-yield interbank assets.

o Lastly, accounting methodology factors contributed 6bps. Specifically, certain

interbank liabilities were matched with financial assets held for trading

(FVTPL), where returns are recognized as investment income. The NIM

calculation excludes this portion of interest expense. However, the rapid

decline in interbank liability costs at the end of last year meant a smaller

corresponding exclusion, thereby exerting a negative impact on NIM.

n Looking ahead to 2Q26, the YoY NIM contraction is projected to narrow by several

basis points relative to 1Q. This anticipated improvement is supported by

developments on both the asset and liability sides.

o On the asset front, new loan pricing stands at 3.1%, effectively narrowing the

spread with existing loans to less than 10 bps, thereby signaling a moderation

in repricing pressure.

o On the liability side, deposit interest rates saw a reduction of approximately

20 bps in 1Q and are expected to continue their downward trend in 2Q, with a

further 5-10 bps decline anticipated for the full year.