Matters:
On March 5, 2022, the fifth session of the 13th National People’s Congress opened. Premier Li Keqiang delivered a government work report to the fifth session of the 13th National People’s Congress on behalf of the State Council. In terms of financial policy, important contents such as “strengthening the implementation of prudent monetary policy”, “giving full play to the dual functions of the total amount and structure of monetary policy tools to provide stronger support for the real economy” and “preventing and resolving major risks” were mentioned.
Ping An View:
The monetary policy was flexible and moderate, and credit increased steadily. The 2022 government work report pointed out that “prudent monetary policy should be flexible and moderate, and maintain reasonable and abundant liquidity”. Under the background of increasing downward pressure on the economy, we believe that the orientation of monetary policy will be more positive in the future. Specifically, both volume and price dimensions will be reflected. In terms of volume, the government work report clearly proposed to “expand the scale of new loans”. Referring to the financial data released in January, the new RMB loans in January 2022 were 3.98 trillion yuan, an increase of 400 billion yuan over the same period last year and 640 billion yuan over the same period in 2020. The growth rate of social finance also stabilized and rebounded in January. We believe that under the guidance of credit expansion, the subsequent bank credit will continue to be active to escort the real economy. From the perspective of the government’s policy of reducing interest rates by 70.5% in the short-term and 1 / 5 months in a row, we believe that there is still room for financial institutions to reduce interest rates for the second consecutive year. From the perspective of the government’s policy of reducing interest rates by 60.5% in the short-term and 1 / 5 months in a row, we believe that there is still room for financial institutions to reduce interest rates for the second consecutive year.
We will increase physical support and continue to favor inclusive microenterprises. In terms of structural policies, the government work report pointed out that we should “expand the coverage of Inclusive Finance”, “make good use of the supporting tools of inclusive small and micro loans, increase small re loans for supporting agriculture, optimize regulatory assessment, promote the significant growth of inclusive small and micro loans, and continue to increase the proportion of credit loans and first loan households”, indicating that from the perspective of structural policies, Inclusive small and micro finance remains the focus of financial institutions. In June 2020, the central bank created the inclusive small and micro enterprise loan extension support tool and credit loan support plan. It is expected that the two direct tools will be continuously converted in a market-oriented manner in 2022. By the end of January 2022, the balance of China’s inclusive small and micro loans was 19.7 trillion yuan, with a year-on-year increase of 25.8%, maintaining a high growth rate, and the average growth rate in recent four years exceeded 25%. We believe that under the guidance of policies, banking financial institutions need to further strengthen their support for inclusive small and micro finance and further realize the innovation of financial products and services. We will steadily prevent financial risks and accurately dismantle bombs. The government work report continues to put forward key requirements for the prevention of financial risks. It is necessary to “continue the basic principles of stabilizing the overall situation, overall coordination, classified policy implementation and accurate bomb dismantlement, and do a good job in the risk disposal in the economic and financial field”. At the same time, “local territorial responsibility, departmental supervision responsibility and enterprise subject responsibility need to be compacted”. In particular, the government work report also proposed for the first time that in the future, it will participate in the process of resolving financial risks by establishing a financial stability guarantee fund, and make more use of market-oriented and legal means to resolve potential risks. We believe that this will help to improve the efficiency of risk treatment and reduce the market volatility caused by major risk events.
Investment suggestion: there is still room for valuation repair, and the annual report focuses on the quality of earnings. The government work report further laid the tone of steady growth. We believe that although the downward interest rate will drag down the bank interest margin, the improvement of economic expectations under the force of policies will boost the bank valuation more significantly. Looking forward to the first quarter of 2022, the gradual implementation of the steady growth policy is expected to support the fundamentals of banks. At present, the static valuation level of the sector is only 0.64x, which is still at an absolute low in history and has a sufficient margin of safety. We are still optimistic about the valuation repair opportunities of the sector under the excessively pessimistic expectation of the economy and the quality of bank assets. Recommendations for individual stocks: 1) high quality regional banks represented by Bank Of Chengdu Co.Ltd(601838) with obvious improvement in fundamentals and margin and better growth than peers; 2) The bank, represented by China Merchants Bank Co.Ltd(600036) , Bank Of Ningbo Co.Ltd(002142) , Postal Savings Bank Of China Co.Ltd(601658) , is a bank that takes into account both asset quality performance and wealth management ability.
Risk tips: 1) the economic downturn leads to higher than expected pressure on the quality of industrial assets. 2) The decline in interest rates led to a narrower than expected industry interest margin. 3) The increase of cash flow pressure of real estate enterprises leads to the rise of credit risk.
