The &#34;village-to-branch&#34; process of SPD Bank continues to accelerate.
On December 3rd, Dalian Ganjingzi SPD Village Bank received the dissolution approval issued by the Dalian Banking Regulatory Bureau. This village bank, established for 15 years, will officially be merged into the SPD Bank system and become the Dalian Suyu Bay Branch.
Coincidentally, since the beginning of this year, six village banks under SPD Bank, including Fumin, Zezhou, and Zouping, have successively completed the &#34;village-to-branch&#34; transformation, reducing the number of village banks to 22.
For village banks, the risk control, digitalization level, and resource allocation capabilities will significantly improve after being incorporated into the head office system;
This not only responds to the regulatory requirements for tightening the responsibilities of initiating banks and accelerating the reform of small and medium-sized financial institutions, but also echoes the recent statements from SPD Bank's management regarding &#34;moderately sinking the operational network.&#34;
In recent years, with narrowing interest margins and weak middle-income growth, the county market has grown into a new blue ocean due to its differentiated industrial foundation and underdeveloped consumption potential. It is no longer new for state-owned banks to actively seek incremental growth in lower-tier markets.
SPD Bank has become one of the participants.
During the interest rate down cycle, SPD Bank's shortcomings in asset pricing and deposit acquisition have been continuously exposed, with net interest margins at the lower end among joint-stock banks; coupled with the lingering effects of the Chengdu branch fraud case in 2017, the bank's performance has long been shrouded in gloom.
Starting in 2024, a new management team led by Chairman Zhang Weizhong and President Xie Wei will gradually take office, proposing to focus on &#34;digital intelligence&#34; transformation, targeting five major tracks: technology, supply chain, inclusive finance, cross-border, and financial resources, to activate the corporate gene;
In this process, sinking into county areas is becoming an increasingly important battlefield.
<h2>Performance &#34;Turnaround&#34;</h2>
In the first three quarters, SPD Bank recorded a total revenue and net profit attributable to shareholders of 132.28 billion yuan and 3.596 billion yuan, with year-on-year growth rates of 1.88% and 10.21%, respectively;
The unique &#34;double increase&#34; in revenue and profit among its A-share peers can be considered a successful &#34;turnaround,&#34; and it continues the trend of profit growth into 2024.
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The core of the &#34;counter-trend&#34; growth lies in stabilizing the credit business, achieving a 3.93% growth in net interest income.
Breaking it down, in the first three quarters, SPD Bank's middle-income, investment income, and fair value changes decreased by 1.39%, 1.27%, and 59.52%, respectively, but the net interest income, which contributed nearly 70% of revenue, achieved growth, becoming the key to reversing the decline.
In the previous period from 2020 to 2024, this net interest income had shown negative growth for five consecutive years, and the current 3.93% growth may signal a rebound in the credit business.
The positive results are attributed to the &#34;increase in both volume and price&#34; of assets:
In the first three quarters, the bank's loans and deposits grew by 5.16% and 8.84% compared to the beginning of the year, maintaining a relatively high expansion speed among joint-stock banks;
Additionally, several securities firms have estimated that the unannounced net interest margin in the third quarter is already in an upward channel
For many years, SPD Bank's net interest margin has not been outstanding, consistently remaining at a lower level compared to its peers since 2019, only outperforming Minsheng Bank among A-share joint-stock banks.
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This is closely related to SPD Bank's business structure:
In the early 2010s, SPD Bank was known as the &#34;King of Corporate Banking&#34; due to its strong capabilities and distinctive corporate business;
However, following the Chengdu branch incident and the retail transformation, the bank began to compress high-risk assets in sectors such as real estate around 2022, strengthening customer access, accelerating risk disposal, and the yield on corporate assets quickly declined;
Additionally, due to the wavering retail strategy and the lack of a stable customer base, the bank's ability to attract deposits has been weak, leading to a continuous decline in net interest margin.
After the new management team took office, the previous &#34;three major banks&#34; (lightweight, green, panoramic) were adjusted to &#34;four major strategies&#34; (regional, industry, online, digital), reorganizing the business focus:
For example, continuing to emphasize the importance of the Yangtze River Delta region, strengthening top-level design, and upgrading the &#34;Yangtze River Delta Integration Demonstration Zone Management Headquarters&#34; to &#34;Yangtze River Delta Integration Management Headquarters,&#34; coordinating differentiated resource allocation for branches in the Yangtze River Delta region;
At the same time, a black-and-white list for corporate business was newly established, with branches conducting industry and regional research, granting sufficient authorization to white list clients, and gradually phasing out black list enterprises' business, planning to further improve the quality of credit assets over the next 3-5 years.
Regarding net interest margin, SPD Bank's approach on the asset side is &#34;lowering while maintaining,&#34; enhancing the precision of credit issuance, while compressing low-efficiency assets, resources are tilted towards key tracks, key regions, key industries, and key customer groups;
On the liability side, it practices &#34;deposit-driven,&#34; increasing settlement deposits.
Xie Wei pointed out that the company emphasizes the proactivity of asset-liability management, clarifying short, medium, and long-term asset-liability management goals, to comprehensively utilize mechanisms such as budgeting, assessment, pricing, finance, capital, and organization to form synergy;
According to him, a one basis point optimization in SPD Bank's interest margin corresponds to approximately 800 million yuan in revenue, &#34;it is expected that in the next 1-2 years, the banking industry's net interest margin may hit bottom and rebound, with the decline further converging.&#34;
By the end of the third quarter, SPD Bank's non-performing loan ratio had decreased by 0.07 percentage points from the beginning of the year to 1.29%, and the provision coverage ratio increased by 11.08 percentage points to 198.04%;
In terms of trends, the non-performing loan ratio has declined for five consecutive years, and the provision coverage ratio has continued to rise for three consecutive years.
However, there are hidden concerns beneath the sunshine of the &#34;turnaround.&#34;
In the first three quarters, the credit impairment losses recognized by SPD Bank were still the highest among A-share peers, but the corresponding provision coverage ratio was at a mid-level among peers, indicating that the bank still has &#34;bad debts&#34; being digested.
For example, the western region continued to be mired in losses in the first half of the year.
Before the Spring Festival in 2018, regulators reported that SPD Bank's Chengdu branch concealed non-performing loans by granting credit of 77.5 billion yuan to 1,493 shell companies in exchange for the companies' contributions to bear the non-performing loans
Since then, SPD Bank in the western region has embarked on a long journey of debt repayment, accumulating over 100 billion in asset impairment losses in nearly 9 years, and this figure continues to rise.
From the estimated amount involved, this &#34;bad debt&#34; that spans multiple management teams may be nearing its end, but how much longer it will continue remains unknown.
<h2>Focusing on the Downstream Customer Base</h2>
The performance fluctuations of SPD Bank are closely tied to the macroeconomic cycle.
During the economic growth upturn driven by real estate and infrastructure, SPD Bank was known for its distinctive corporate business;
After the Chengdu fraud case erupted in 2017, coupled with a significant slowdown in subsequent infrastructure investment growth, SPD Bank hoped to escape its predicament through retail transformation.
At that time, consumption emerged as the &#34;main engine&#34; of economic growth, driving rapid growth in financial demands such as personal consumption loans, credit cards, and wealth management. China Merchants Bank showcased strong profitability and market valuation through its retail business.
With the exemplary effects of peers in mind, SPD Bank fully ramped up its retail efforts in 2017, attracting a large number of customers with high-value, low-threshold credit cards during the aggressive expansion phase, leading to a rapid expansion of its retail scale;
However, beneath the extensive &#34;land-grabbing&#34; approach, the bank's credit card delinquency rate continued to rise, with bad debt write-offs offsetting profits, and the retail transformation stalled, leading to changes in the management team in 2023.
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The subsequent management team is now led by Zhang Weizhong and Xie Wei.
The new team's strategy focuses on &#34;digital intelligence&#34; transformation, primarily targeting five major sectors in the industry: technology, supply chain, inclusive finance, cross-border, and financial resources, while regionally concentrating on the Yangtze River Delta, leveraging the mutual empowerment of the Shanghai branch with Jiangsu, Zhejiang, and Anhui.
All of the above also reflects another underlying focus of SPD Bank in the new cycle—downstream markets.
In the current context of shrinking housing prices, depreciating assets, and significantly reduced consumer willingness, the downstream market has shown more notable resilience, with the potential of county-level markets being repeatedly validated in industry events where Agricultural Bank's market value surpassed that of Industrial and Commercial Bank.
Now, SPD Bank's strategy reflects greater attention to the downstream market:
On one hand, it is focusing on key sectors. China Merchants Securities analyst Wang Xianshuang pointed out that the technology, supply chain, and inclusive finance sectors within SPD Bank's &#34;five major sectors&#34; reflect the company's transformation strategy of sinking down and expanding small and medium-sized clients.
For SPD Bank, the benefits of sinking down lie in enhancing asset pricing and deposit-raising capabilities:
According to Wang Xianshuang's estimates, after the bank's customer base sinks down in 2024, the yield on corporate loans will still be lower than the average level of joint-stock banks, but the gap has been narrowing year by year;
Currently, SPD Bank's deposit growth rate has outpaced the loan growth rate by 3.68 percentage points, while the liability structure continues to optimize.
Vice President Kang Jie mentioned future growth points for corporate services, revealing plans to expand into potential areas based on service vitality;
Kang Jie stated that a selection of key cities and some top 100 counties will be made based on core indicators such as industrial agglomeration and fiscal contribution capacity, &#34;We will moderately sink our operational network to enhance regional coverage depth and service response efficiency.&#34;
On the other hand, SPD Bank is also continuously absorbing rural banks to expand its foothold in the county market.
In the early years, SPD Bank was one of the most enthusiastic joint-stock banks in establishing rural banks, with a total of 28 rural banks under its umbrella, second only to China Minsheng Bank among its peers.
However, the difference between rural banks and branches of the head office is that rural banks, as independent legal entities, cannot access the head office system and cannot share the standardized processes and digital results of the head office regarding risk control, internal governance, and customer acquisition.
This exposes rural banks to greater risks.
In 2024, the 28 rural banks of SPD Bank achieved a total operating income of 693 million yuan, with a net profit of -69 million yuan, resulting in a loss.
With future access to the head office system, the former rural banks will also share the head office's &#34;digital intelligence&#34; transformation results, and their overall competitiveness is expected to further enhance.
However, for SPD Bank, determination and strategy are equally important.
Management is not achieved overnight; banks that have achieved counter-cyclical growth in the current downturn cycle have mostly been deeply cultivating the sinking market for many years, accumulating a solid customer base and experience.
The expansion of SPD Bank's sinking operational network will also face direct confrontation with local financial forces.
Wang Xianshuang believes that behind the asset quality issues of SPD Bank lies the instability of corporate governance and inadequate strategic execution.
He stated, &#34;As long as the company's management can maintain professionalism and stability, with the stable advancement of technological construction by SPD Bank's management, the effects of customer base expansion will gradually manifest within 3-5 years.&#34;

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