Core view
On March 21, the interbank lending center announced the latest quoted interest rate of LPR. The one-year LPR interest rate was 3.70% and the five-year LPR interest rate was 4.60%, unchanged from the previous month without adjustment. We believe that this long-term and short-term LPR quotation is the result of the joint action of money market and economic fundamentals, which is in line with expectations as a whole. On the one hand, LPR is formed by the increase of MLF interest rate, which is affected by MLF interest rate and bank debt cost. The bid winning interest rate of 200 billion MLF operation conducted by the central bank on March 15 is the same as that of last month. Since the reform of LPR quotation mechanism, there has been no precedent of reducing LPR alone without reducing reserve requirements and interest rates. On the other hand, since the beginning of the year, market interest rates such as dr007 and R007 and inter-bank certificate of deposit interest rates have increased slightly, and the pressure margin of comprehensive cost at the liability side of banks has increased. Considering that the net interest margin level of the industry as a whole is still in the historically low range (2.08%, 2021q4), banks lack the motivation to reduce LPR quotation. In addition, in terms of economic fundamentals, the economic data from January to February improved better than expected, and industrial added value, fixed asset investment and other indicators warmed up. Even excluding the disturbance of base effect, the effect of steady growth is significantly better than market expectations. Therefore, the marginal necessity of LPR reduction is reduced.
The tone of loose monetary policy has not changed, and the real capital interest rate has a downward trend. We believe that the stability of this LPR quotation is more due to the market-oriented consideration of banks based on risk return, capital cost and credit demand, which does not mean that the orientation of monetary policy has changed. At the special meeting of the Finance Committee on March 15, it was clearly put forward that “monetary policy should respond actively” and “new credit should maintain moderate growth”. Considering that the current economy is still under downward pressure due to factors such as real estate and the epidemic, it can be predicted that the subsequent Central bank may still drive banks to reduce real loan interest rates and stimulate the recovery of credit demand by reducing MLF, LPR and other monetary policies, The pace and range need to pay attention to the subsequent macroeconomic recovery.
There is still downward pressure on loan interest rates, but we judge that the improvement of asset negative structure will support the resilience of Bank net interest margin.
Although the LPR quotation has been flat for two consecutive months, under the economic environment of economic pressure and weak financing demand and the policy requirements of “making profits on the real economy and reducing the financing cost of real enterprises”, the actual loan interest rate issued by banks is still declining. According to the statistics of the CBRC, the loan interest rate of newly issued inclusive small and micro enterprises from January to February is 5.57%, down 0.12 percentage points from 2021. Looking forward to the follow-up, the policy requirements of increasing economic downward pressure and reducing physical financing costs still exist. We expect that there will still be some downward pressure on the pricing of bank asset side loans. However, considering that the regulation of bank deposit solicitation with high interest rates continues, and the fluctuation of capital market since the beginning of the year has improved the volume and price situation of bank deposit solicitation, we expect that there is still room for further optimization of bank liability side costs, So as to support the bank’s annual net interest margin performance and maintain a certain degree of toughness.
Investment proposal and investment object
At present, the static Pb valuation level of the sector is only 0.59x, which is still at a historical low. The market’s concerns about economic growth and bank asset quality are fully reflected. Combined with the positive statements of the financial commission, the central bank, the China Banking and Insurance Regulatory Commission and other relevant departments last week, it can be predicted that in the face of economic pressure and the goal of stable growth, the strength of follow-up policies is expected to be further improved and continue to increase the underpinning economy, which will help to repair the extremely pessimistic expectations of the market. In the context of the sustained efforts of the steady growth policy, the fundamentals of banks are still supported. We are optimistic about the opportunity to repair the valuation of the sector and 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.
