Why analyst thinks China's larger banks will outperform its smaller rivals

Weaker NIM progression seen for smaller banks.

Bernstein Research expects the monetary policy of China's central bank will remain neutral in the coming months.

The central bank is aiming to slow overall credit growth in China by clamping down on issuance of certain forms of social financing, especially those forms of credit that are used for speculative purposes and offer little in economic value/growth.

It noted that while the large banks have outperformed the smaller banks by more than 670bp year-to-date, it
continues to prefer the large banks in the current environment.

Here's more:

We expect the larger banks to outperform the smaller banks as the smaller banks will see weaker NIM progression and higher credit costs in their second half results (the banks will publish their Q3 results at the end of October).

We prefer CCB, ICBC and BOC (rated Outperform) to China Merchants Bank and China Minsheng Bank (rated Underperform) over the next 12-18 months.

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