Bank of Nanjing's 1Q26 revenue was strong, but quality and capital details still warrant attention

Overview

This report reviews Bank of Nanjing's 4Q25 and 1Q26 results. Net profit grew 8% year-on-year in both 4Q25 and 1Q26, while 1Q26 revenue increased 14% year-on-year. Headline growth looked strong, but the conclusion is more mixed due to the revenue mix, provisioning pressure, capital constraints, and retail asset quality. JPMorgan expects the market reaction could be mildly to moderately positive.

Core views

The core view is that strong net interest income growth supported revenue performance, but this may not necessarily mean the NIM trend has stabilized, as part of the growth was driven by changes in the measurement classification of financial assets and expansion in interest-earning assets; non-interest income came in below expectations, with both fee and non-fee income contracting year-on-year; overall asset quality was stable but pressure on the retail side remains; and declining capital adequacy ratios limit the room for endogenous capital replenishment in the near term.

Analysis framework

The report uses a combination of earnings breakdown, quarterly trends, asset quality indicators, capital adequacy ratios, and valuation models, focusing on comparisons across 4Q25, 1Q26, and half-year trends to assess the quality of revenue growth and the sustainability of profits.

Methodology notes

• Valuation methodsDDM

  Dividend discount model

  The target price of Rmb13.40 is based on DDM, assuming a cost of equity of 13.4%, normalized ROE of 11.3%, and a terminal date of December 31, 2027.

• Bank earnings analysisFinancial ratio analysis

  Net interest income, non-interest income, cost-to-income ratio, credit cost, and asset quality

  The bank's earnings quality and risk are assessed through revenue mix, cost efficiency, provisioning, NPLs, special mention loans, coverage ratio, and capital adequacy ratios.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• 601009.SS

  Covered stock

  Strengths

  Strong revenue growth, net interest income above expectations, improved cost-to-income ratio, overall stable asset quality, and attractive shareholder returns with a commitment to maintain a dividend payout ratio above 30%.

  Weaknesses

  Weak non-interest income, rising credit costs, declining capital adequacy ratios, and no disclosed quarterly NIM, meaning NIM stability still needs to be verified.

  Comparison

  The report states that the increase in the retail NPL ratio was smaller than that of some peers, for example lower than the increase disclosed by Bank of Hangzhou-A.

  Risks

  Fee growth below expectations, NIM expansion below expectations, deterioration in asset quality, and limited capital replenishment resources.

Key data

• 1Q26 net profit attributable to parent growthYoY +8%Below revenue growth, mainly dragged by higher credit costs.
• 1Q26 total revenue growthYoY +14%Supported by strong net interest income growth.
• 1Q26 net interest income growthYoY +39%Mainly driven by the asset side, with loans up 8% quarter-on-quarter in 1Q.
• 1Q26 non-interest income growthYoY -18%Fee income was -15% YoY, and non-fee income was -19% YoY.
• 1Q26 cost-to-income ratio22.4%Down about 3 percentage points year-on-year, as revenue grew while operating expenses were flat year-on-year.
• 1Q26 NPL ratio0.83%Flat quarter-on-quarter.
• 1Q26 special mention loan ratio1.05%Down 11 basis points quarter-on-quarter.
• 1Q26 CET1 ratio9.17%Down 18 basis points quarter-on-quarter.
• Target priceRmb13.40Based on DDM, with a target price end date of December 31, 2026.

Impact & implications

For investors, the near-term focus for Bank of Nanjing is whether net interest income and loan growth can be sustained, while also verifying whether non-interest income can recover, whether credit costs can decline, whether retail asset quality can remain stable, and whether capital constraints will limit future growth. The current rating remains Overweight, but the earnings details are not unilaterally positive.

Risks

• Fee growth below expectations.
• NIM expansion below expectations.
• Deterioration in asset quality, especially continued pressure in retail loans.
• Credit costs above expectations.
• Continued decline in capital adequacy ratios, limiting asset expansion and capital replenishment capacity.

What to watch

• Whether the NIM trend truly stabilizes in subsequent quarters.
• Whether the high net interest income growth is sustainable, or mainly comes from measurement adjustments and expansion in interest-earning assets.
• Whether fee and non-fee income can recover.
• Changes in asset quality for retail loans, mortgage loans, and credit card loans.
• Changes in credit costs and provision coverage ratio.
• CET1 ratio and capital replenishment arrangements.