Bank of Communications' "250 billion yuan blunder" incident sparks controversy, with non-performing loan ratio and net interest margin declining

Ask AI · How did the Bank of Communications’ $250 billion “operational mix-up” expose internal control risks?

Harbor Business Observation Wang Lu

The typo in the text of the announcement almost caused the Bank of Communications (601328.SH) to spend an additional RMB 258.2 billion—no doubt a bizarre “embarrassment” during this year’s annual report season.

Meanwhile, although the Bank of Communications’ 2025 annual report shows overall solid performance, its net interest margin is still drawing market attention.

1

The “operational mix-up” event has sparked controversy and nearly led to spending over $250 billion more

On March 30, the Bank of Communications issued a correction announcement. Looking at the details, on March 27 this year it disclosed the Bank of Communications Co., Ltd. 2025 Profit Distribution Plan Announcement (Announcement No.: Lin 2026-006). Due to insufficient proofreading, the original announcement contained a textual error.

The correction is as follows: Before the correction: (III) Based on the total number of ordinary shares outstanding as of December 31, 2025, 88.364 billion shares, distribute cash dividends of RMB 1.684 per 10 shares (including tax) to A-share shareholders and H-share shareholders registered with the company. In total, RMB 14.88 billion in cash dividends will be distributed. On this basis, adding the interim 2025 semi-annual dividend already distributed by the company (cash dividends of RMB 1.563 per 10 shares (including tax)), the company’s cash dividends for the full year 2025 will be RMB 3.247 per share (including tax), totaling RMB 88.36B in cash dividends, with a cash dividend payout ratio of 32.3% (i.e., the total cash dividends distributed as a proportion of the net profit attributable to ordinary shareholders of the parent company).

After the correction: (III) Based on the total number of ordinary shares outstanding as of December 31, 2025, 88.364 billion shares, distribute cash dividends of RMB 1.684 per 10 shares (including tax) to A-share shareholders and H-share shareholders registered with the company. In total, RMB 14.88 billion in cash dividends will be distributed. On this basis, adding the interim 2025 semi-annual dividend already distributed by the company (cash dividends of RMB 1.563 per 10 shares (including tax)), the company’s cash dividends for the full year 2025 will be RMB 3.247 per 10 shares (including tax), totaling RMB 28.69B in cash dividends, with a cash dividend payout ratio of 32.3% (i.e., the total cash dividends distributed as a proportion of the net profit attributable to ordinary shareholders of the parent company).

In other words, using the Bank of Communications’ total ordinary share capital of 88.36B shares as of December 31, 2025, if it pays out “RMB 3.247 per share,” it would distribute cash dividends of RMB 28.69B; if it pays out “RMB 3.247 per 10 shares,” it would distribute cash dividends of RMB 88.36B. The difference between the two is about RMB 258.2 billion.

A person observing the capital markets said, “In this case, although the Bank of Communications says the mistake was due to insufficient proofreading, such a basic error is very likely unacceptable to investors. In other words, what outsiders are questioning is: if investors, based on the information in the earlier announcement, became optimistic about the company’s prospects and made an investment decision, then should the Bank of Communications be held responsible for that? It is recommended that the regulator conduct a related investigation into this conduct. At the same time, at the level of internal control compliance, BOCOM also needs to comprehensively examine itself, correct itself, and carefully reflect.”

The Bank of Communications’ mistake has triggered waves upon waves. On Eastmoney’s stock forums and other social platforms, many investors are clearly quite dissatisfied with this.

2

Non-performing ratio declines, and net interest margin also declines

In terms of operating performance, in 2025, the Bank of Communications achieved operating income of RMB 286.92B, up 2.02% year over year; net profit attributable to shareholders of RMB 28.69B, up 2.18% year over year.

As of end-2025, the Bank of Communications Group’s total assets exceeded RMB 15.5 trillion, up 4.35% from the end of the previous year. Of this, customer loan balance was RMB 9.12 trillion, up RMB 265.07B from the end of the previous year, an increase of 6.64%; customer deposit balance was RMB 9.31 trillion, up RMB 507.48 billion from the end of the previous year, an increase of 5.77%.

In terms of asset quality, as of end-2025, the Bank of Communications Group’s non-performing loan ratio was 1.28%, down 0.03 percentage points from the end of the previous year; the provision coverage ratio was 208.38%, up 6.44 percentage points from the end of the previous year.

At the same time, the company achieved interest income of RMB 95.62B, down RMB 155k year over year, a decline of 7.14%. Among them, customer loan interest income, securities investment interest income, and interest income on deposits with the central bank accounted for 64.34%, 26.92%, and 2.63%, respectively. Net interest income was RMB 91.2k, up RMB 568.45B year over year, an increase of 1.91%. Its share in operating income was 65.29%, making it a major component of business income.

In 2025, the Bank of Communications’ net interest yield was 1.20%, down 7 basis points year over year. The main reason was that the asset-side yield fell more significantly. Under the influence of factors such as the LPR rate cuts and intense industry competition amid strong supply and weak demand, the customer loan yield declined by 58 basis points year over year; meanwhile, the overall decline in the market interest rate center drove the securities investment yield down by 25 basis points. To deal with the downward pressure on asset yields, the company continued to strengthen its assessment and forecasting of market interest rate trends, reasonably adjusted its business structure, dynamically optimized its pricing strategy, and reduced its cost of liabilities year over year.

Regarding net interest margin performance, Zhou Wanfu, executive director and vice president of the Bank of Communications, said that since 2025, through efforts on multiple fronts, the Bank of Communications has achieved broadly stable net interest margin. Since the third quarter of 2025, the bank’s net interest margin has basically remained stable. Looking ahead to the full year 2026, it is expected that the net interest margin will maintain a stable and improving trend. One support condition is deposit repricing; the other is that constraints from pricing self-discipline mechanisms have become noticeably stronger.

He also pointed out that the bank will focus on three areas: first, strictly carry out pricing and volume review and management for deposits and loans to ensure that each business line and operating unit assumes responsibility for balanced growth in volume and pricing; second, implement deposit and loan pricing management in a more refined manner and strictly comply with pricing self-discipline mechanisms; third, dynamically optimize and adjust the asset-liability structure.

GF Securities (Guotai Junan) said that compared with the first three quarters, results were basically in line. The company benefited from a narrowing decline on the asset side plus improved liability costs. Loan yield and deposit cost ratio were both compared to the range of 25H1-13bp and -11bp, respectively, to 3.03% and 1.74%. Net interest income for the full year 2025 increased 1.9% year over year, with growth 0.4 percentage points higher than in the first three quarters.

The investment recommendation it gave is that over the past two years, the Bank of Communications has emphasized high-quality development, with key indicators staying on an improving trend. It assigns a target valuation of 0.6 times PB for 2026, a target price of RMB 8.23, and maintains a rating of “Overweight” (buy).

CICC believes that internationalization and diversification have become an important profit support for the Bank of Communications. In terms of diversification, in 2025, the company’s subsidiaries’ net profit attributable to shareholders grew 9.7% year over year, accounting for 11% of the Group’s net profit. In terms of internationalization, net profit of overseas banks grew 7.4% year over year, accounting for 11.7% of the Group’s net profit. The cross-border financial services segment is growing quickly: the balance of overseas loans by RMB domestic institutions increased 93.5% year over year, cross-border trade financing balances increased 85.6% year over year, and international settlement volume increased 14.6%.

CICC said it maintains the company’s profit forecasts and valuation unchanged. The current A-share stock price corresponds to 0.5x/0.5x P/B for 2026/2027, and the H-share stock price corresponds to 0.5x/0.4x P/B for 2026/2027. The company maintains its A-share target price at RMB 8.91, corresponding to 0.6x P/B for 2026 and 0.6x P/B for 2027, representing an upside of 29.5% from the current share price, and maintains a “outperform the industry” rating. It maintains the H-share target price at HKD 7.56, corresponding to 0.6x P/B for 2026 and 0.6x P/B for 2027, representing an upside of 8.8% from the current share price, and maintains an “outperform the industry” rating.

Guosen Securities said the company’s fundamentals are overall fairly stable. Based on the annual report, it slightly adjusts the company’s profit forecast and advances it by one year. It expects the company’s 2026–2027 net profit attributable to shareholders of RMB 98.7/102.1 billion (previous forecast: RMB 98.8/103.2 billion), and 2028 net profit attributable to shareholders of RMB 106.0 billion, with year-over-year growth rates of 3.2%/3.4%/3.9%. Diluted EPS is RMB 1.04/1.08/1.12. The current share price corresponds to PE of 6.7/6.5/6.2x, and PB of 0.51/0.48/0.46x. It maintains a “Better than the market” rating. (Produced by Harbor Finance)