Core view
Since 21q4, in the face of the downward pressure of China's economy, the countercyclical adjustment of policy has been significantly increased, the monetary policy has turned to loose, and various steady growth policies have been introduced one after another. Among them, the marginal improvement of infrastructure investment and real estate policy has a significant role in underpinning the economy and credit supply, which is expected to form an effective support for the fundamentals of banks in 2022.
Infrastructure investment is expected to support the sustainable growth of bank credit. Since 21q3, the steady growth policy has continued to increase. Through the key deployment of various meetings, it can be seen that infrastructure is still one of the most important starting points for the implementation of wide credit and supporting the economy at the policy level. From the perspective of implementation, since the beginning of the year, the issuance of local bonds has accelerated, the investment of local governments has significantly increased, and the pace of project construction has accelerated. Looking forward to 2022, infrastructure is expected to continue to develop with policy support. For banks, infrastructure investment has multiplier effect, which can underpin the economy and leverage credit demand, forming an effective support for credit supply. On the other hand, infrastructure projects are more invested in low-risk areas, which helps to stabilize asset quality risks. On the whole, the continuous development of infrastructure construction is of positive significance to the stability of the bank's fundamentals. In terms of individuals, large and medium-sized banks are the main providers of infrastructure loans, which is expected to better deal with the problem of asset shortage caused by the economic downturn.
The recovery of real estate policy is conducive to the mitigation of bank credit risk. Since 21q4, we can see the marginal relaxation of real estate policy from both the demand side and the capital side. On the capital side, the central bank guides banks to increase the investment in mortgage, development loan and M & a loan, and encourages M & A financing to support issuance and defuse market risks. On the demand side, the central bank lowered the five-year LPR every 21 months. At the same time, focusing on the requirements of "implementing policies for the city", the policy aimed at boosting demand has also continued to increase. Some cities have reduced the mortgage interest rate and down payment ratio, increased the amount of provident fund loans, and protected the release of reasonable demand in the real estate market. At present, the market is still pessimistic about the real estate credit problem. Looking forward to 2022, with the real estate policy entering an obvious recovery cycle, there is room for marginal improvement in the industry liquidity environment, which will help to repair the extremely pessimistic expectation of the market.
Fundamental outlook: the policy environment is mild, and the good profit performance of banks is expected to continue. Looking forward to 2022, the steady growth policy is expected to support the economy and protect the bank's business environment around the two key directions of correcting deviations and maintaining stability in real estate and increasing infrastructure investment. We expect the bank's fundamentals to remain stable. In terms of volume, the bank made a good start in January. In the later stage, with the accelerated implementation of infrastructure projects, it is expected to support the steady growth of credit. In terms of interest rate spread, there is still downward pressure on the asset side, but the regulation of high interest rate deposit solicitation behavior continues, and the cost of bank liability side is expected to be further improved, supporting the performance of interest rate spread to remain relatively stable. In terms of asset quality, the overall bad burden of the industry has been fully resolved in the past 3-4 years, and we expect the pressure of bad debt generation to be controllable. Overall, we expect the net profit growth of listed banks to continue to perform well in 2022.
Investment proposal and investment object
The fundamentals are stable and optimistic about the valuation and repair market of the sector. As of March 3, 2022, the static Pb valuation level of the sector is only 0.65x, which is still at a historical absolute low. The implied non-performing rate corresponding to the valuation is about 12%, and the fund position is also at a historical low. The pessimistic expectations of the market for the economic downturn and the quality of bank assets are fully reflected. At present, the policy level is still in the transmission period from wide currency to wide credit. There is still room for the stable growth policy in the future, and the bank fundamentals are still supported. We suggest paying attention to the valuation repair opportunities brought by the "correction" of overly pessimistic market expectations, and continue to maintain the "optimistic" rating of the industry. In terms of individual stocks, it is suggested to pay attention to: 1) value targets with excellent historical profitability and leading asset quality represented by China Merchants Bank Co.Ltd(600036) ( China Merchants Bank Co.Ltd(600036) , Unrated) and Bank Of Ningbo Co.Ltd(002142) ( Bank Of Ningbo Co.Ltd(002142) , Unrated); 2) Undervalued targets represented by Industrial Bank Co.Ltd(601166) ( Industrial Bank Co.Ltd(601166) , not rated) and Postal Savings Bank Of China Co.Ltd(601658) ( Postal Savings Bank Of China Co.Ltd(601658) , not rated); 3) Urban rural commercial banks with strong regional economic advantages represented by Shanghai Rural Commercial Bank Co.Ltd(601825) ( Shanghai Rural Commercial Bank Co.Ltd(601825) , not rated), Bank Of Chengdu Co.Ltd(601838) ( Bank Of Chengdu Co.Ltd(601838) , not rated), Bank Of Nanjing Co.Ltd(601009) ( Bank Of Nanjing Co.Ltd(601009) , not rated).
Risk tips
The economic downturn exceeded expectations, resulting in higher than expected pressure on the asset quality of the industry.
The liquidity risk of real estate enterprises continues to spread, disturbing the asset quality of banks.
The strength of financial supervision rose more than expected.
