Bank of China meeting takeaways: NIM stabilization, loan growth, and stable dividends support a positive outlook

Overview

This report is Goldman Sachs' meeting notes on Bank of China following Asia Financial Corporates Day, with core information drawn from discussions with the company's IR team and business-line management. The report focuses on NIM, loan growth, bond investments, capital and dividends, regulatory impacts, asset quality, and the full-year earnings outlook. The overall conclusion is positive: management believes NIM is likely to stabilize or improve, net interest income in 2026 may achieve mid- to high-single-digit growth, and full-year revenue and net profit are targeted to improve sequentially quarter by quarter.

Core views

The core views include: first, deposit repricing and deployment into foreign-currency assets are expected to support NIM stabilization; second, the 2026 loan growth target remains 8%-10%, with corporate loans still the main area of deployment; third, RMB bond investments will continue to expand, and duration control plus higher AC allocation should help reduce capital volatility; fourth, the 30% dividend payout ratio remains stable; fifth, property and retail asset quality still face short-term pressure, but improving overseas asset quality provides an offset.

Analysis framework

The report adopts a meeting-notes framework, breaking down management commentary into NIM, loans, investment income, capital dividends, regulatory impact, asset quality, and earnings outlook, and combines this with Goldman Sachs' target-price methodology, P/PPOP valuation multiples, and risk disclosures to form its investment view.

Methodology notes

• Valuation method2027E P/PPOP multiple

  12-month target price

  Goldman Sachs uses 2027E target P/PPOP multiples for Bank of China A/H shares, at 4.375x for A-shares and 3.875x for H-shares, corresponding to target prices of Rmb 6.72 and HK$ 5.95, respectively.

• Factor frameworkGS Factor Profile

  Growth, financial returns, valuation multiples, and composite percentile

  This framework benchmarks against covered stocks and industry peers, comparing attributes such as growth, financial returns, and valuation multiples; for financial stocks, it mainly uses metrics such as EPS, revenue growth, ROE, P/E, P/B, and P/D.

• M&A frameworkM&A Rank

  Assessment of the probability of becoming a potential M&A target

  Goldman Sachs assesses the probability of a company becoming an M&A target on a scale of 1 to 3; if rated 1 or 2, M&A factors may be incorporated into the target price.

• Data toolQuantum

  Goldman Sachs proprietary financial database

  Quantum is used to obtain detailed financial statement history, forecasts, and ratios, supporting in-depth single-company analysis as well as cross-industry and cross-market comparisons.

Asset mapping & comparison

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

• Bank of China H-shares (03988.HK)

  Core covered name, directly corresponding to the report title and H-share target price.

  Strengths

  NIM stabilization, increased deployment into foreign-currency assets, improving overseas asset quality, stable 30% dividend payout ratio.

  Weaknesses

  Short-term credit pressure remains concentrated in property and retail, while yields on new loans remain low in a low-rate environment.

  Comparison

  The disclosed price is HK$5.34, and the 12-month target price is HK$5.95, implying about 11.4% upside excluding dividends.

  Risks

  Asset growth significantly above expectations may affect capital accumulation; dividend payout ratio cuts; continued deterioration in asset quality.

• Bank of China A-shares (601988.SS)

  Covered on the same fundamental basis, with Goldman Sachs maintaining a Buy rating and target price on the A-shares.

  Strengths

  Strong corporate loan origination, with YTD loan growth as of end-May ranking in the first tier among large state-owned banks; expansion in bond investments may enhance income contribution.

  Weaknesses

  Low domestic interest rates and property-related credit risks may still drag on yields and provisioning pressure.

  Comparison

  The disclosed price is Rmb6.14, and the 12-month target price is Rmb 6.72, implying about 9.4% upside excluding dividends.

  Risks

  If NPL formation rises again or capital consumption exceeds expectations, valuation recovery may be constrained.

• BOC HK/BOCHK

  A subsidiary and Hong Kong business platform supported by the group for market-cap management.

  Strengths

  Can conduct market-cap management through buybacks or higher dividends; under static estimates, the impact on the group's CET1 ratio and ROE is neutral.

  Weaknesses

  The offshore RMB FX trading pilot is still at an early stage, so short-term direct profit contribution may be limited.

  Comparison

  Compared with onshore operations, overseas and Hong Kong businesses have greater leverage in foreign-currency asset deployment and cross-border client services.

  Risks

  Changes in overseas interest rates, exchange rates, and cross-border regulation may affect asset deployment and wealth management opportunities.

Key data

• 1Q26 NIM1.26%Stable for four consecutive quarters.
• Expected funding cost improvementabout 10bpsFrom repricing of 3-year time deposits over the next three quarters.
• 2026 net interest income outlookmid- to high-single-digit growthManagement commentary is more optimistic than at the beginning of the year.
• 2026 loan growth target8%-10%The target quarterly deployment pace is 4:3:2:1.
• 1Q RMB corporate loan originationabout Rmb 880bnAccounts for most of the roughly Rmb 1tn in total new loans.
• 1Q newly originated corporate loan rate+3bps QoQRose slightly quarter over quarter, outperforming peers.
• 1Q mortgage loan balance-0.5% YTDAffected by early repayments; new originations exceeded Rmb 100bn, and new mortgage rates were stable at about 3.05%.
• 1Q consumer loan balanceclose to Rmb 500bn, +10% YTDYield on newly originated loans was about 3.0%-3.1%.
• 1Q credit card installment volume+40% YoYCredit card spending rose about 2% YoY, and new installment rates were about 7%.
• Share of overseas assetsabout 1/4Foreign-currency loan growth was strong in 1Q, roughly matching the growth rate of onshore RMB loans.
• Total asset CAGR over the past five years9.5%Over the next five years, development is expected to shift toward higher-quality, quality-focused growth.
• 2026 asset growth outlook8%-10%Onshore assets are expected to grow 9%+, and overseas assets 7%+.
• Target dividend payout ratio30%Management's target is to maintain stable dividends.
• 12-month target priceA-shares Rmb 6.72; H-shares HK$ 5.95Corresponding to 2027E target P/PPOP multiples of 4.375x for A-shares and 3.875x for H-shares.

Impact & implications

For investors, the report reinforces the thesis that Bank of China can maintain earnings resilience in a low-rate environment through lower funding costs, foreign-currency asset allocation, expanded bond investment scale, and stable dividends. If NIM stabilizes, loan growth progresses as planned, and asset quality does not deteriorate further, there is still some upside to the A/H share target prices; however, if property and retail risks continue to surface, this will weaken earnings improvement and capital accumulation.

Risks

• Asset growth significantly above expectations, which may affect capital accumulation.
• A cut in the dividend payout ratio, weakening expectations for shareholder returns.
• Continued deterioration in asset quality, especially pressure from property, consumer loans, and business loans.
• Declining market interest rates may compress yields on new assets and bond yields.
• Overseas operations face risks from changes in interest rates, exchange rates, and cross-border regulation.

What to watch

• Whether the LPR remains unchanged, and whether repricing of 3-year time deposits can achieve about a 10bps decline in funding costs.
• Whether 2026 loan growth advances according to the 8%-10% target and the 4:3:2:1 quarterly pacing.
• Changes in NPL formation, NPL ratio, and provision coverage in the property and retail sectors.
• The impact of RMB bond investment expansion, duration control, and a higher AC mix on capital volatility.
• Whether foreign-currency loan growth, overseas NIM, and improving overseas asset quality can be sustained.
• The actual business impact of inbound institutional investment, regulation of individuals' cross-border investment, the offshore RMB FX trading pilot, and the narrowing of the interest-rate corridor.