Chinese banks likely posted more moderate NIM declines

New Berstein Research report also expects higher EPS.

"We are raising our 2013E-14E EPS estimates for the Chinese banks and making minor adjustments to our 2012E estimates for the group to reflect our thoughts on the banks' Q4 '12 earnings power," said Berstein Research.

"In general, we are raising our 2013 and 2014 EPS estimates by 5% and 7%, respectively, to reflect betterthan-expected NIM progression. We had originally forecasted NIMs to decline by 20bp (on a weighted average basis) for the group in 2013 on the back of the mid-year 2012 interest rate declines, but have modified that to a 10bp decline as bank pricing power is holding up well," it added.

Berstein Research said that it forecasts better NIM progression among the large Chinese banks vs. smaller banks. It predicts that NIMs will compress by 7bp for the Big 4 banks in 2013 vs. 23bp for the other banks it covers.

"We are now 3% above consensus for 2013 EPS estimates on the banks. While we are more positive on the banks' NIMs (the market is expecting 20-25bp declines to NIMs in 2013), we forecast higher credit costs (relative to consensus) on the group. It is difficult to forecast with much certainty about credit costs for the Chinese banks in the coming two years given the lack of historical benchmarks," it said.

"We currently forecast the banks' credit costs to increase an average 14bp in 2013 (from 0.54% in 2012) and then increase another 24bp in 2014 to 0.92%. In this environment, we continue to favor the large banks as they will have the best earnings experience in the coming quarters. With Q4 '12 and Q1 '13 earnings to be reported in March and April, we expect to see the large banks outperform their smaller peers at that time," it said further.