Agricultural Bank of China （ABC） attended our Access China 2018 conference inBeijing today, and below are key takeaways:
Revenue
ABC's NIM is likely to expand modestly in 2018. Fee income growth in 2017 wasactually quite good, if one-off impact is excluded, and the growth may continuein 2018.
Asset quality
The bank's NPL balance may continue to drop, with lower formation and higherwrite-offs. ABC has geared up efforts to dispose NPLs. The better asset quality isunderpinned by better corporate profitability, especially in mining, manufacturing,retail and wholesale trades. Due to countercyclical considerations, provisioninghas room to go up.
Loans
Loan demand stayed strong. The bank will focus on high-quality corporate loansand individual loans. The mix is likely to be similar to 2017.
Deutsche Bank view
ABC is one of our top picks, as we see it as a key beneficiary of: 1） higher marketrates, given its strong deposit franchise; 2） better corporate financial health; andthe bank is likely to be the target of Southbound buyers, due to it having thehighest dividend yield and a wide A-H premium.