Bank of Nanjing (601009) Report Interpretation

Overview

Goldman Sachs’ first take on Bank of Nanjing’s 2Q26 results finds the quarter broadly in line. Stronger-than-expected NII and capital improvement were positives, but weaker non-interest income and the need to monitor retail credit quality support the maintained Neutral rating.

Core views

Bank of Nanjing reported 2Q26 PPOP of Rmb 11.3bn and net profit of Rmb 7.1bn, up 9% and 8% year-on-year. PPOP was 2% above Goldman Sachs estimates and net profit was broadly in line. Goldman Sachs expects a positive near-term market reaction, but argues that a medium-term valuation re-rating still depends on asset-quality developments and capital management. The principal upside in the quarter was NII. It reached Rmb 11.1bn, up 41% year-on-year and 3% quarter-on-quarter, 17% above Goldman Sachs estimates. First-half NIM improved to 1.79% from 1.58% in 1Q26; Goldman Sachs calculated 2Q26 NIM at 1.39%, up 27bp year-on-year and 22bp above its estimate. The improvement was mainly due to lower funding costs as high-cost deposits were repriced, rather than higher asset yields. Solid 13% year-on-year loan growth further supported NII growth. Non-NII income was the main shortfall. At Rmb 4.3bn, it fell 33% year-on-year and was 29% below Goldman Sachs estimates. Fee income of Rmb 0.8bn declined 25% year-on-year and was 34% below estimate amid muted consumption demand, lower wealth-management and custody fee rates, and fee-reduction policies. Investment income was Rmb 3.7bn, down 28% year-on-year and 21% below estimate, largely because 2Q25 had benefited from a strong bond market. Although the bank expanded both FVTOCI and FVTPL balances, market volatility in 2Q26 constrained capital gains; Goldman Sachs notes this was broadly sector-wide. Asset quality was broadly stable: the NPL ratio was 0.82%, down 1bp quarter-on-quarter, and annualized net NPL formation improved by 16bp quarter-on-quarter to 1.0%. However, NPL coverage fell to 306%, down 6 percentage points year-on-year and 1 percentage point quarter-on-quarter, even as provisions rose 28% year-on-year to Rmb 3.0bn, 13% above estimate. Goldman Sachs suggests this may reflect more provisioning for non-loan assets. As Bank of Nanjing has expanded retail lending since 2023, the report expects investor attention on credit trends across retail sub-segments; retail NPLs were stable at 1.42%. Capital improved, with the CET1 ratio reaching 9.4%, up 20bp quarter-on-quarter and 39bp above Goldman Sachs estimates. Declining RWA density indicates better capital efficiency and provides support for future balance-sheet growth. Goldman Sachs maintains Neutral with a 12-month target price of Rmb 12.20, based on a 2027E target P/PPOP multiple of 2.875x.

Analysis framework

Goldman Sachs compares quarterly income, balance-sheet, asset-quality and capital metrics with prior periods and its own estimates. It then links NII performance to NIM and funding-cost changes, explains non-NII weakness through fee and market conditions, and weighs retail-credit and capital trends in its valuation and rating conclusion.

Methodology notes

• Other

  2027E target P/PPOP multiple

  Goldman Sachs values the bank using a target price-to-pre-provision-operating-profit multiple applied to its 2027 estimate; the stated target multiple is 2.875x.

Asset mapping & comparison

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

• Bank of Nanjing (601009.SH)

  Primary covered bank; strong NII growth and capital improvement are balanced by non-NII weakness and asset-quality monitoring needs.

  Strengths

  NII growth was stronger than expected, loan growth remained solid, and CET1 improved.

  Weaknesses

  Fee and investment income declined materially versus the prior year and Goldman Sachs estimates.

  Comparison

  Non-NII pressure from market volatility was described as broadly consistent across the sector.

  Risks

  Worse NIM, weaker fee growth, FVTOCI losses, or a dividend payout-ratio cut.

Key data

• 2Q26 PPOPRmb 11.3bn+9% year-on-year; 2% above Goldman Sachs estimates.
• 2Q26 net profitRmb 7.1bn+8% year-on-year; broadly in line with Goldman Sachs estimates.
• 2Q26 NIIRmb 11.1bn+41% year-on-year, +3% quarter-on-quarter, and 17% above Goldman Sachs estimates.
• 1H26 NIM1.79%Improved from 1.58% in 1Q26.
• 2Q26 non-NII incomeRmb 4.3bn-33% year-on-year and 29% below Goldman Sachs estimates.
• NPL ratio0.82%Down 1bp quarter-on-quarter as of 2Q26.
• NPL coverage ratio306%Down 6 percentage points year-on-year and 1 percentage point quarter-on-quarter.
• CET1 ratio9.4%Up 20bp quarter-on-quarter and 39bp above Goldman Sachs estimates.

Impact & implications

The report sees the funding-cost-driven NIM recovery and better capital efficiency as supportive near-term developments. It says sustained valuation improvement will require evidence that NIM can hold as deposit-repricing benefits fade, retail credit remains sound, non-NII income stabilizes, and capital-management or shareholder-return plans progress.

Risks

• NIM could deteriorate as deposit-repricing benefits fade.
• Fee-income growth could weaken further.
• Losses on FVTOCI investments could pressure results.
• A cut in the dividend payout ratio would be a downside risk.

What to watch

• Whether NIM improvement is sustainable as deposit-repricing benefits gradually fade.
• Retail asset-quality trends and NPL coverage.
• Stabilization of investment income and recovery in fee income.
• Capital replenishment plans and shareholder-return policies.