China Construction Bank's deposits up 5.4% to US$2.3t in Q1

Loans also rose 3.5% in the same quarter.

According to Jefferies, China Construction Bank (CCB) 1Q results are of high quality. The key highlights include strong deposit growth, sizable sequential margin expansion and high ROE. CCB remains one of our preferred China banks, together with CMB and ICBC. Reiterate Buy rating and HK$9.3 target price.

Here's more from Jefferies:

CCB continues its strong deposit momentum. Deposits grew 5.4% to Rmb16.2tn (US$2.3t) in 1Q (relative to 3.5% sector deposit growth), an impressive achievement for a large bank. CCB has further strengthened its deposit franchise in the past two years by offering more payroll account service and payment transaction recycling. We expect CCB to further gain deposit market share for another few quarters. Loans rose 3.5% in 1Q, after fully utilizing its loan quota.

10bp sequential NIM expansion a positive surprise. We were expecting CCB 1Q NIM to be flat QoQ but it beat our expectation. 1Q NIM rose 10bp QoQ to 2.13% mainly due to stable funding cost. We are not yet convinced NIM expansion will continue for long, as tightened regulation may push up deposit cost for every bank.

Asset quality stable but credit cost higher. 1Q NPL ratio was 1.52%, flat QoQ. After lifting credit cost to 118bp, CCB increased NPL coverage to 160%. Loan loss reserve now accounts for 2.42% of gross loans.

CCB is a solid bank with strong funding franchise, decent cost control, high profitability and solid capital ratios. We expect its business only to be marginally impacted by the new banking regulations. We reiterate our Buy rating and HK$9.3 target price.