Talk every Monday: policy force and valuation bottom
Event: on December 20, the national interbank lending center announced that the one-year LPR was 3.8%, down 5bps from the previous month, and the five-year LPR was 4.65%, unchanged from the previous month. The central bank lowered the one-year LPR for the first time in nearly 20 months.
LPR = average value (the “MLF + point” of 18 banks), and the additional point depends on the capital cost, credit preference, risk cost, capital cost, etc. the central bank only adjusts the price for 1-year LPR, and neither MLF nor 5-year LPR has changed. We think or based on the following reasons:
From the perspective of enterprise financing, affected by the epidemic and economy, the operation of small, medium-sized and micro enterprises and individual industrial and commercial households is still difficult, the overall financing demand is weak, and the social finance indicators continue to be under pressure. The reduction of one-year LPR further releases the signal of transferring profits to entities, which is in line with the policy tone of “appropriate policy force forward” and “stable growth”, It is also the implementation of the central economic work conference’s policy of “strengthening support for small, medium-sized and micro enterprises, individual industrial and commercial households, manufacturing and risk resolution, increasing financing support for the real economy, and promoting financing increment, expansion and price reduction of small, medium-sized and micro enterprises”.
From the perspective of Bank net interest margin, the reform of deposit interest rate pricing mechanism in June this year and the two standard cuts in July and December have effectively reduced the bank’s debt cost, opening room for LPR reduction. This one-year LPR reduction has limited impact on bank net interest margin.
From the perspective of real estate, the MLF and 5-year LPR have not changed, indicating that the policy is still cautious. Although the real estate policy has been loosened recently and the expectation of stable real estate policy is strong, the tone of “real estate is not fried” has not changed. Historically, a similar situation occurred only in September 2019. The central bank first lowered the reserve requirement and then lowered the one-year LPR, and the five-year LPR remained unchanged. The same point is that supporting the real economy is a structural problem. After reducing MLF, a large amount of funds may flow to real estate, which is contrary to the tone of real estate regulation.
The interest rate cut has been fully expected in the market. In the future, we should focus on the economic growth situation in the first quarter of next year. If the economic fundamentals are still weak, there may be more loose policies. Taking 2019 as an example, on November 5, 2019, the central bank announced to reduce mlf5bps after the 1-year LPR reduction in September 2019 failed to change the trend of economic weakness.
Investment strategy: for banks, the steady growth policy will be gradually introduced, the policy bottom will be gradually transmitted to the economic bottom, and the banking business environment will be significantly improved. At present, the valuation of bank stocks is in the bottom range, and the investment value appears.
From the perspective of credit supply, in the case of obvious downward pressure on the economy and high regulation intensity this year, the demand for corporate loans has weakened and the risk appetite of banks has decreased, so that the loan supply is less than expected. With the gradual implementation of loose policies, the demand for corporate loans is expected to boost.
From the perspective of net interest margin, the reduction of LPR is based on the reduction of the pressure on the cost of bank liabilities. The net interest margin of 21q3 bank is 2.06%, which is at the bottom of history. It is expected that the probability of continued decline of net interest margin in the future is low, or more policies to reduce the cost of bank liabilities can be expected.
From the perspective of asset quality, the policy margin is loose, and stability maintenance signals are released for many times. The easing intensity is gradually increased, and the asset quality is gradually improved. Policy fulfillment and valuation bottom create a good opportunity for bank sector allocation. We suggest paying attention to two main lines:
Joint stock banks with dominant intermediary business, such as China Merchants Bank Co.Ltd(600036) , Ping An Bank Co.Ltd(000001) and Industrial Bank Co.Ltd(601166) ;
Regional banks with prominent regional advantages, controllable bad debts and broad growth space, such as Bank Of Ningbo Co.Ltd(002142) , Bank Of Nanjing Co.Ltd(601009) , Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) , Zhejiang Shaoxing Ruifeng Rural Commercial Bank Co.Ltd(601528) .
Market review:
Performance of sectors & stocks: this week, the banking sector fell – 0.76%, 0.08 percentage points lower than the Shanghai and Shenzhen 300 index. Among them, state-owned banks rose 0.48%, joint-stock banks fell 1.36%, urban commercial banks fell 0.81%, and rural commercial banks rose 0.09%. In terms of specific stocks, Jiangsu Zijin Rural Commercial Bank Co.Ltd(601860) (+ 5.31%), Bank Of Chengdu Co.Ltd(601838) (+ 3.28%), China Citic Bank Corporation Limited(601998) (+ 1.77%) led the increase, and Zhejiang Shaoxing Ruifeng Rural Commercial Bank Co.Ltd(601528) (- 4.3%), Bank Of Hangzhou Co.Ltd(600926) (- 2.88%) and Industrial Bank Co.Ltd(601166) (- 2.1%) fell the most.
North direction capital flow: the cumulative net outflow of north direction capital this week was 1.221 billion yuan, of which the cumulative net outflow of banking sector this week was 7.79 yuan, ranking 29 / 30. In terms of specific stocks, Industrial And Commercial Bank Of China Limited(601398) , Postal Savings Bank Of China Co.Ltd(601658) , Bank Of Jiangsu Co.Ltd(600919) received the most net purchases. In terms of the shareholding ratio of land stock link, Ping An Bank Co.Ltd(000001) (9.14%), China Merchants Bank Co.Ltd(600036) (7.32%), Bank Of Ningbo Co.Ltd(002142) (5.76%) land stock link holds the highest proportion of circulating a shares.
Risk tip: policy risk; The risk of macroeconomic recovery falling short of expectations; The global covid-19 epidemic continues to deteriorate.
