Big banks' PPOP in line, with NIM expansion and stable asset quality    The big 4Chinese banks reported 3Q17PPoP up 9% yoy (2Q17: 8%), in linewith our forecasts: a solid set of results, as evidenced by continued NIMexpansion (up 5bps qoq), stable NPL formation and stronger provisioncoverage. The quality difference between the big 4and other banks haswidened further, the latter showing weak funding strength and inferior assetquality. Among the big banks, CCB and ABC delivered relatively strongerresults. We see BOC's numbers as solid, with less NPL formation and thestrongest NII growth, which didn't warrant the share price correction today.    Stronger NII growth for big banks given strong deposit franchise    Funding strength remains key differentiator, leading divergent trends in netinterest income (NII) growth (Fig 3). Given their strong deposit franchise, bigbanks were able to record largely stable funding costs. As net interbanklenders, they also benefited from higher market rates. Hence, their NIM wasbetter than expected, + 5bps qoq. With stable asset growth, big banks' NIIgrowth accelerated to 13.3% yoy. However, other banks were hit by fundingpressure and tighter regulations. These smaller banks are heavily reliant onwholesale funding, which were 33% of liabilities (Fig 7). As such, the highermarket rates have pushed up their funding costs (Fig 6). Reflecting tighterrules, smaller banks were forced to scale back on-B/S shadow banking (i.e.receivable investment), resulting in deposit declines, upping their funding cost.Stable NPL formation for big banks but pressure persists for other banksThe asset quality trends of big and smaller banks continued to diverge. Weestimate that the big four banks recorded a lower NPL formation rate of 62bpsin 3Q17, in line with 55bps in 2Q17and 71bps in 1Q17(Fig 11). They seizedthe chance to top up provision coverage (up 4.4ppt to 165%). For instance,ICBC lifted its provision coverage from 141% in 1Q17to 148% in 3Q17.    However, asset quality pressure persists for smaller banks, which recorded ahigher NPL formation rate of 120bps in 3Q17. This is because smaller banksadopted a loosened NPL classification standard, with loans overdue more than90days higher than the NPL balance. We note that several joint stock bankswere still under pressure with elevated NPL formation rates in 3Q17, includingSPDB (290bps), PAB (279bps), CNCB (118bps) and INDB (113bps). BOCQ alsoreported a higher NPL formation rate of 180bps in 3Q17. With weak PPoPgrowth, the smaller banks had to save credit cost and reduce NPL coverage.    BOC: buy on dips; top pick retained    BOC H-share corrected 3.5% today after results, which seems unjustified. Themkt is mainly concerned about asset quality (NPL ratio + 4bps) and NIM (-1bps). However, we urge investors to focus on NPL formation rate, a moreaccurate indicator of asset quality trends. BOC's NPL formation rate actuallyfell to 68bps in 3Q17vs. 80bps in 1H17, on our est. Its NIM was dragged byBOCHK temporarily, but we expect NIM for BOC domestic and BOC HK toexpand further in 1H18. Meanwhile, BOC recorded the strongest NII growthamong peers. BOC remains our top pick: a key beneficiary of better industrialprofits, US rate hikes and "Belt and Road" initiatives.

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