Analyzing the Reasons Behind Bank of Qingdao's "Double-Digit" Profit Growth

In the "cold winter" of the banking industry, characterized by weak credit demand and pressure on wealth management businesses, maintaining double-digit growth is not common.

Among the 35 listed banks that have disclosed their performance for 2024, less than 30% achieved a profit growth of over 10%;

Among them, Bank of Qingdao achieved a 20.16% growth in net profit attributable to shareholders, earning the title of "crown" among city commercial banks, becoming the only listed bank besides Shanghai Pudong Development Bank with a profit growth rate exceeding 20%.

Breaking it down, the contribution of interest and non-interest income to Bank of Qingdao's revenue is represented by a "70-30" split, making its revenue composition quite representative in the banking industry:

Among them, net interest income comes from "volume compensating for price" under rapid balance sheet expansion, with a year-on-year growth rate of 6.38%;

The growth in non-interest income is expected to come from investment income under the "bull market" for bonds and sales services for precious metals driven by high gold prices, with an increase of 13.58%.

For the new leadership team, the profit growth rate that leads the industry has already validated the effectiveness of Bank of Qingdao's "new three-year strategic plan."

In mid-2022, Jing Zailun, who has 30 years of experience at Bank of China, was appointed chairman of Bank of Qingdao; the following year, Wu Xianming, known as "Old Agriculture," took office as president of Bank of Qingdao.

In April of the same year, two vice presidents, Zhang Chihong and Zhang Meng, joined, and the new leadership team of Bank of Qingdao was basically in place.

After the personnel were complete, Bank of Qingdao launched its "new three-year strategic plan," focusing on four strategic themes: "adjusting structure, strengthening customer base, optimizing collaboration, and enhancing capabilities," to promote the upgrade of its corporate banking, retail banking, financial market business, and international business.

From the current indicators, the bank is quietly moving forward along the strategic planning direction.

Corporate Surge

Similar to most city commercial banks, Bank of Qingdao's business structure is still primarily based on deposits and loans.

What is rare is that, at a time when individuals and families generally show a tendency to shrink their balance sheets, the bank has maintained a high pace of balance sheet expansion.

By the end of 2024, the asset and liability growth rates of Bank of Qingdao were 4.28 percentage points and 4.4 percentage points higher than the overall city commercial bank sector, respectively; total assets and liabilities increased by 13.48% and 13.56% compared to the beginning of the year, with total loans and deposits growing by 13.53% and 11.91%, all figures above 10%.

With over 70% of loans being corporate loans, they are still surging at a rate of over 20%, becoming a key force for Bank of Qingdao to maintain interest income.

The above increments benefit from increased investments in key areas such as manufacturing, private enterprises, inclusive finance, and technology.

Bank of Qingdao revealed that the growth rates of new loans in manufacturing, technology, green projects, and agriculture all exceeded 40%, with inclusive loan increments and growth rates reaching historical highs.

The linkage model with the financial market sector may be one of the reasons why Bank of Qingdao's corporate business still has growth potential.

Vice President Liu Peng emphasized this model at the performance meeting, stating, "The two sectors maintain a relatively good linkage, mainly guided by customer financing needs, conducting investment-loan linkage, inventory linkage, and other financial services."

According to him, first, the investment-loan linkage involves comprehensive credit granting to corporate clients, conducting linkage through reasonable allocation of operational channels;

Second, the investment-deposit linkage stimulates deposits through marketing linkages at the forefront of branch offices; Third, the underwriting linkage, with its proprietary and wealth management investment platforms, makes the company's bond issuance business system more complete, helping corporate clients seek nationwide funding support;

Fourth, the innovation linkage can provide services such as certificate creation for corporate clients through licensing advantages, achieving better collaboration in financing and credit.

In 2024, the bank's corporate and market financial segments contributed 45.84% and 21.58% to revenue, respectively, and 55.81% and 21.14% to profit.

The incremental success of segment linkage has effectively promoted "volume to supplement price," helping the Bank of Qingdao withstand the pressure of declining interest rates.

In 2024, the bank's net interest margin remained at 1.73%, a slight decrease of 0.1 percentage points from the previous year, ranking 9th among the 23 listed banks based on publicly disclosed data.

Despite high growth, there are also hidden concerns.

In terms of asset quality, although the overall non-performing loan ratio of the Bank of Qingdao successfully decreased by 0.04 percentage points, there are still multiple areas where the number of non-performing loans has increased, such as a 27.44% increase in wholesale and retail non-performing loans and a 61.1% increase in the construction industry.

At the same time, there is a significant lack of deposit pricing power.

With corporate loans accounting for over 70% of total loans and a growth rate of 20.15%, corporate deposits only account for 50%, with a growth rate of 7.57%.

Overall, the long-term support for the Bank of Qingdao's corporate credit surge still relies on higher-cost time and retail deposits:

First, in the existing deposit structure, 70% are time deposits and 50% are retail deposits, resulting in a higher overall cost;

Second, in terms of incremental growth, the growth rate of time deposits is 18.57 percentage points higher than that of demand deposits, and the growth rate of retail deposits is 9.07 percentage points higher than that of corporate deposits.

In 2024, the Bank of Qingdao's cost of liabilities was 2.18%, which is in the mid-range among listed banks; the leverage ratio was 5.79%, exceeding the regulatory requirement of 4%. The bank explained that this was mainly due to the development of various businesses and an increase in asset scale.

Retail Catch-Up

More than a decade ago, the Bank of Qingdao may not have anticipated that the main driving force behind its high growth in performance today would still be corporate business.

As a city commercial bank in the "first tier" of scale in Shandong Province, the Bank of Qingdao recognized the importance of the retail sector earlier than its peers as corporate credit soared with the development of the manufacturing industry.

In 2010, Guo Shaoquan, who had worked for many years at China Merchants Bank, joined the Bank of Qingdao as chairman, vigorously promoting retail business and aiming to establish it as a "small China Merchants Bank";

After 2017, Qingyin Financial Leasing and Qingyin Wealth Management were successively established, obtaining qualifications such as independent lead underwriting as a Class B underwriter and securities fund custody, forming a pattern of multiple business formats coexisting.

In horizontal comparison with peers, the Bank of Qingdao's retail business has shown certain resilience against the backdrop of pressure on real estate and wealth management businesses.

Amid the general decline in retail performance of state-owned banks and urban rural commercial banks, the bank's retail division saw revenue and profit "counter-cyclical" growth of 7.59% and 34.93%, respectively;

Among them, the commission income from fund distribution business increased by as much as 92.61% year-on-year, forming a sharp contrast with peers facing pressure on income amid the trend of reducing fund fees However, after breaking down the profits, it is evident that corporate banking remains the core of Bank of Qingdao.

In 2024, the bank's retail business profit contribution rate is 13.51%, significantly lower than the corporate and market financial segments at 55.81% and 21.14%, respectively;

Retail loan interest income fell by 6.38% year-on-year, with the non-performing loan ratio rising by 58 basis points to 2.02%.

In terms of the mutual empowerment between light and heavy asset businesses within the company, the linkage between traditional corporate credit and the financial market's "investment banking + sales + market making" is superior to the wealth management and customer collaboration in the retail direction.

Although the bank's retail deposit growth rate reached 16.64% in 2024, the average cost rate was 2.46%, which is significantly higher than that of joint-stock banks;

It is evident that Bank of Qingdao has not yet replicated the low-interest deposit advantage achieved by China Merchants Bank through its wealth management business.

The non-interest income, which grew by 13.58% for the year, is mainly composed of investment income and fair value changes:

First, in the second half of 2023, the bank timely increased its investment in public funds and seized the opportunity of rising bond market valuations in the first half of 2024, achieving rapid growth in investment and valuation income;

Second, with gold prices soaring, revenue from precious metals sales increased by 129 million yuan.

Internationalization Efforts

As corporate, retail, and financial markets show positive trends, the international business, which ranks as the fourth largest segment alongside the first three, may face significant challenges in the future.

In 2024, the bank still did not separately list the profit from international business, only disclosing some key data in the text:

The international settlement business volume was USD 17.688 billion, an increase of 31.31% compared to the end of the previous year, with both international settlement volume and cross-border RMB settlement volume ranking first among legal person banks in Shandong Province.

However, the current trade frictions are becoming a shadow that looms over the overseas business.

Regarding the topic of tariffs, the bank's president Eddie Wu candidly stated, "There are many factors affecting the internal and external environment in 2025, and some changes are quite drastic."

He also mentioned, "We will comprehensively assess the changes in the external environment and our own capabilities to adjust the operational guiding principles for 2025."

"U.S. tariff increases will have a certain impact on foreign exchange and imports and exports in the short term," said Vice President Liu Peng, "but in the long term, it will accelerate the reshaping and upgrading of the entire industrial chain, and the demand for domestic enterprises to go overseas will increase, which presents opportunities for commercial banks."

However, Liu Peng also emphasized that this "tariff friction" has limited impact on Bank of Qingdao itself:

First, the bank's international settlement volume related to U.S. trade is relatively low, and the concentration of U.S. business is low; second, it has adopted innovative channels on the client side to proactively respond to tariff changes.

Liu Peng stated that in the future, Bank of Qingdao will continue to promote the strategic deployment of international business and continuously strengthen the core technology construction of international business. "We hope to explore market potential through specialized services and personalized products, enhance the competitiveness of international business, and achieve optimal international business services and the best foreign exchange professional teams, among other international business brands."