As of yesterday, the first quarter financial reports of the four major banks have all been released. In the context of profit declines for Industrial and Commercial Bank of China, China Construction Bank, and Bank of China, Agricultural Bank of China achieved positive growth in both revenue and profit. What is the core driving force behind this performance?
On April 30th, a research report from China Merchants Securities pointed out that among the listed large and medium-sized banks, there are not many that achieved positive growth in both revenue and profit in the first quarter. As a state-owned large bank, the continued positive growth rate of revenue and profit for Agricultural Bank of China is a rare achievement, primarily benefiting from the high growth of other non-interest income, which continues to make a positive contribution to performance.
The report stated that in the first quarter, the bond market adjusted, and other non-interest income in the banking industry generally faced pressure, with many banks experiencing significant negative growth, which dragged down revenue performance. However, Agricultural Bank of China saw its other non-interest income growth not only maintained but increased, with a growth rate of 45.3% in Q1 2025, further up from the full-year growth rate of 26.3% in 2024.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/fde6ac6d-33c1-437f-839d-404cf07e7577.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/fde6ac6d-33c1-437f-839d-404cf07e7577.png"/>
Source: iFind, China Merchants Securities
<h2>The Magical Operation of Non-Interest Income Growth Against the Trend: Strategic Layout with Precise Timing</h2>
The non-interest income of Agricultural Bank of China grew against the trend in the first quarter, making it a major highlight in the market.
It is noteworthy that this growth occurred against the backdrop of adjustments in the bond market. In the first quarter, the yield on 2-year government bonds rose by 43 basis points, which should have put pressure on the valuation of bank assets. Many large and medium-sized banks indeed experienced negative growth in other non-interest income as a result.
China Merchants Securities believes that the high growth of other non-interest income against the backdrop of bond market adjustments indicates that Agricultural Bank of China may have realized gains at the low point of interest rates in the first quarter, thus achieving the conversion of OCI floating profits into investment income, while also reducing the extent of floating losses caused by bond market adjustments.
Data shows that by the end of 2024, Agricultural Bank of China's TPL investment (measured at fair value with changes included in current profit and loss) had a balance of 5.1 trillion yuan, and OCI investment (measured at fair value with changes included in other comprehensive income) had a balance of 3.43 trillion yuan, totaling 8.84 trillion yuan. If calculated based on an average duration of 2 years, theoretically, bond investments should have floating losses of about 33 billion yuan.
However, the actual results for Agricultural Bank of China show that its net investment income was +7.1 billion yuan (an increase of 3.5 billion yuan year-on-year), net gains from fair value changes were +3.9 billion yuan (a decrease of 300 million yuan year-on-year), and other comprehensive income was -21.6 billion yuan (a decrease of 16.8 billion yuan year-on-year), totaling -10.5 billion yuan (a decrease of 13.6 billion yuan year-on-year), which is significantly lower than the estimated floating loss of 33 billion yuan, proving that Agricultural Bank of China’s timing operations were effective.
<h2>Scale Reduction Solidifies Results: Proactively Controlling Asset Growth and Structure</h2>
China Merchants Securities pointed out in the report that Agricultural Bank of China also demonstrated unique insights in managing its balance sheet.
By the end of the first quarter of 2025, Agricultural Bank of China's total asset growth rate had dropped to 6.3%, the lowest among the six major state-owned banks, mainly due to two proactive adjustments:
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First, it significantly reduced interbank assets such as interbank deposits and funds lent out; second, the growth rate of financial investments decreased from 23.5% at the end of 2024 to 12.7% by the end of the first quarter
These adjustments contrast with the loan business, where Agricultural Bank of China (ABC) maintains a medium to high growth rate of around 10% in loans.
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This indicates that ABC's timing in managing assets and liabilities is primarily achieved through interbank and financial investments. This strategy has allowed it to maintain a good level of returns even during a downward cycle in asset pricing.
At the same time, ABC's balance sheet in the first quarter shows a significant increase in precious metal investments, echoing the related market trends, indicating that ABC focuses on seizing market opportunities in asset allocation.
<h2>Deposit and Intermediate Income Growth: Further Improvement Needed</h2>
Although ABC's asset allocation performance is impressive, there is still room for improvement in its deposits and intermediate business income.
By the end of the first quarter of 2025, ABC's deposits grew by 3.1% year-on-year, which is lower than its total assets and loan growth; net fee income in the first quarter decreased by 3.5% year-on-year. Although the decline has narrowed compared to 2024, it still represents negative growth.
CITIC Securities research points out that although ABC has generated excess returns in recent years through asset and liability management, in the long term, deposits, intermediate income, and asset quality are the foundation for a bank's long-term excess returns. ABC's asset quality is already leading among large banks, and if deposits and intermediate income can further improve in the future, it will provide greater room for valuation enhancement for ABC

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China Merchants Securities believes that the core benefits from other non-interest income's counter-cyclical high growth, with a growth rate of as high as 45.3% in Q1 2025. The counter-cyclical high growth of other non-interest income indicates that Agricultural Bank of China may have realized gains during the low interest rate period in the first quarter, achieving on one hand the conversion of OCI floating profits into investment income, and on the other hand reducing the extent of floating losses caused by adjustments in the bond market

- Agricultural Bank of China reported positive growth in both revenue and profit for Q1 2025, contrasting with declines in other major banks.  
- This growth is attributed to a significant increase in non-interest income, which rose by 45.3% despite a challenging bond market environment.  
- However, the bank's deposit growth and net fee income still require improvement to enhance long-term profitability and valuation.

Rare among major banks! Why did ABC's Q1 revenue and profit manage to grow against the trend?