Ping An Bank's de-risking inflection point confirmed; BofA upgrades to Buy

Overview

This report is BofA's rating change report on Ping An Bank. Its core conclusion is that de-risking and retail transformation have achieved verifiable results, and the bank is moving from a restructuring phase into a recovery growth phase. The report upgrades Ping An Bank from Underperform to Buy and raises the target price by 11.5% to CNY 12.91.

Core views

The report's core views include: first, the new round of retail transformation launched in 2H23 has largely cleaned up the old retail model characterized by high pricing and high risk; second, after significant contraction, retail loan balances stabilized in 2025, while exposure to high-risk credit cards and Xinyidai declined substantially; third, improvements in NIM, non-interest income, and credit costs are expected to drive revenue and net profit back to positive growth in 2026; fourth, the current 0.45x P/B and 5.6% dividend yield are at attractive levels, and improving fundamentals may bring valuation re-rating.

Analysis framework

The report analyzes Ping An Bank from multiple dimensions including business transformation, loan structure, retail loan yields, NPL formation, earnings forecasts, valuation model, and peer comparison. On the earnings side, it mainly focuses on changes in NII, non-interest income, credit costs, and net profit forecasts; on the valuation side, it uses an adjusted Gordon Growth Model and combines P/B, dividend yield, and peer discount analysis to assess re-rating potential.

Methodology notes

• Valuation methodsAdjusted Gordon Growth Model

  Derives the target P/B from ROE, medium-term growth rate, and cost of equity.

  Based on an average ROE of 8.95%, a medium-term growth rate of 4.0%, and a cost of equity of 13.5%, the report derives a 2026E target P/B of 0.52x and accordingly arrives at a target price of CNY 12.91.

• Peer comparisonBank P/B and dividend yield comparison

  Compares Ping An Bank's valuation and dividend yield with those of national banks and joint-stock banks.

  The report notes that Ping An Bank's current P/B and relative industry discount are close to historical lows, while its dividend yield is above both its own historical average and the roughly 4.3% peer level of national banks.

• Fundamental qualityAsset quality and de-risking tracking

  Verifies transformation results through high-risk retail exposure, retail loan balances, loan yields, and NPL indicators.

  The report focuses on Xinyidai balances, credit card loan balances, non-mortgage retail loan yields, new NPL formation, and the retail NPL ratio to judge whether risk cleanup has been completed.

Asset mapping & comparison

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

• Ping An Bank A-share 000001.SZ

  Core covered target

  Strengths

  High-risk retail exposure has declined substantially, asset quality is improving, revenue and profit growth may resume in 2026, and valuation and dividend yield are attractive.

  Weaknesses

  Although the share of non-mortgage retail loans has declined, it remains higher than that of most peers, and revenue and earnings previously experienced consecutive declines.

  Comparison

  The report believes Ping An Bank still trades at a discount to the average P/B of joint-stock banks, while its dividend yield is above the roughly 4.3% level of national bank peers.

  Risks

  Macro and regulatory risks, deterioration in retail consumer loan asset quality, loan growth below expectations, significant NIM compression, and higher-than-expected capital consumption.

• China joint-stock banking sector

  Peer comparison and valuation benchmark

  Strengths

  If industry risk appetite improves, low-valuation banks may benefit from re-rating.

  Weaknesses

  The sector as a whole still faces pressure from spreads, asset quality, and regulation.

  Comparison

  Ping An Bank stands out versus peers in the improvement of some risk indicators, but its non-mortgage retail exposure remains relatively high.

  Risks

  Sector-wide macro pressure, rising credit costs, and policy and regulatory changes.

• Ping An Insurance 601318.SS

  Related asset of controlling shareholder

  Strengths

  Ping An Insurance, as the controlling shareholder, holds a 58% stake in Ping An Bank; the bank's recovery may improve perceptions of asset quality within the group's financial ecosystem.

  Weaknesses

  This report does not provide an independent rating or valuation conclusion on Ping An Insurance.

  Comparison

  It is mentioned only as Ping An Bank's controlling shareholder and is not a primary coverage target.

  Risks

  There is uncertainty over how improvements in the banking business will transmit to the group's valuation.

Key data

• Rating changeUnderperform → BuyInvestment view adjusted from A-3-7 to A-1-7.
• Target priceCNY 12.91Raised 11.5% from the previous CNY 11.58.
• Current priceCNY 11.06Price disclosed on the report cover page.
• 2026E revenue growthabout 2.5%The report expects revenue to return to positive growth in 2026.
• 2026E net profit growthabout 3.2%Net profit is expected to return to positive growth in 2026.
• Current valuation0.45x P/BThe report says it is near historical low levels.
• Dividend yield5.6%Higher than its own historical average and the roughly 4.3% level of national bank peers.
• Change in Xinyidai balanceFrom a peak above RMB 150bn to near zeroExposure to high-priced, high-risk unsecured loans has been largely cleared.
• Change in retail loansRMB 2.07tn → RMB 1.73tnDown 16% from the peak in 2Q23 to 1Q25, then stabilized.
• Non-mortgage retail loan yieldAbove 7% in 1H23 → below 5% in 2H25Yields converged toward peer levels, reflecting lower risk appetite and improved customer mix.

Impact & implications

If the report's view plays out, Ping An Bank's investment thesis will shift from a de-risking discount to earnings recovery and valuation repair. Short-term catalysts include a return to positive year-on-year revenue and profit growth in 1Q26; medium-term focus points are continued declines in credit costs, recovery in NIM and non-interest income, and whether the market re-prices its improved risk profile.

Risks

• Deterioration in the macroeconomic and banking regulatory environment.
• Significant deterioration in retail consumer loan asset quality.
• Loan balance growth below expectations.
• Greater-than-expected NIM compression.
• Higher-than-expected capital consumption, affecting organic capital growth.
• A slower-than-expected recovery in revenue and profit after the transformation.

What to watch

• Whether revenue and net profit in 1Q26 achieve 2%-3% year-on-year positive growth.
• Whether Xinyidai and high-risk credit card exposure continue to remain at low levels.
• Whether retail loan balances continue the stabilization trend seen after 2025.
• Whether non-mortgage retail loan yields remain at low-risk, sustainable levels.
• Whether new NPL formation and the retail NPL ratio continue to improve.
• Whether NIM, non-interest income, and credit costs support earnings recovery in 2026-2028.
• Whether the P/B discount and dividend yield premium narrow as fundamentals improve.