View update in April: the current economic situation deviates from the policy expectation in the short term, and pay attention to the banks with strong performance.
1. Industry logic: the core logic of the sector in 2022 is that the transmission from broad currency to broad credit under the fist of policy combination will bring about the repair of economic expectations and the improvement of valuation. The social finance data show that although the current bank financing supply is relatively positive, the structural demand is still weak. In March, the bill interest rate continued to run at a low level (although there was a short rise in the interest rate at the end of March, it may be a seasonal factor at the end of the month. The rediscount rate of three-month bills of the state securities Bank of China still decreased by 13bps to 1.99% compared with February, the lowest in recent three years). Therefore, the recovery of physical demand is still under observation. Superimposed on the impact of the epidemic, the social finance and credit structure is expected to be relatively weak from March to April. But for the banking industry:
A. the actual situation of steady growth in the future and the relaxation expectation of real estate related policies all positively catalyze the sentiment of the sector. For example, the impact of real estate policy on the banking sector is reflected in: (I) the debt risk of real estate enterprises increases, and the strength of relevant policies will directly affect the asset quality of banks; (2) Since the beginning of the year, the transaction volume of the housing market has remained low. From February to March 30, the transaction area of commercial housing in large and medium-sized cities has basically increased by – 30% – 50% year-on-year every week. The demand side policies in many regions are being gradually relaxed. Whether the transactions in the housing market can improve in the future will affect the demand for bank credit.
B. in addition, when the Federal Reserve starts to raise interest rates, there may be upward pressure on the global interest rate environment, and the market may be subject to shocks. However, due to the upward expectation of interest rate, which is good for the interest margin and performance of banks, and the low valuation of the banking sector (only 0.61x), historically, banks tend to obtain relative returns under similar environments.
C. since April, the bank will enter the intensive release period of the first quarterly report. The bank’s operation and performance are relatively differentiated, and the excellent performance of high-quality banks is expected to catalyze the market.
2. Recommendation of individual stocks: a. Bank Of Ningbo Co.Ltd(002142) : Management landing + stable and high performance growth, low proportion of real estate and low risk. The current 22pb level is only about 1.68x, which is cost-effective. B. Benefiting from the steady growth of infrastructure construction, the performance growth rate is expected to be in the forefront of the industry, and the high-quality small and medium-sized banks with strong willingness to convert convertible bonds into shares: Chengdu, Hangzhou, Bank Of Nanjing Co.Ltd(601009) etc. C. Banks with underestimated value and marginal improvement in performance: postal savings, Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) etc. D. Benefiting from the relaxed expectation of real estate policy, stable growth, stable employment and effective policy, high-quality retail banks are expected to usher in valuation repair opportunities: investment promotion, Ping An Bank Co.Ltd(000001) etc.
What are the concerns of the phased detailed interpretation of the bank’s 21 annual report?
1. Quick view of indicators of 34 banks that disclosed annual reports and express reports: revenue growth continued to increase and non-performing indicators improved steadily. 1) Revenue: the overall revenue of 34 banks increased by 7.9% (Two-year compound growth rate of 6.7%), further increasing by 0.3pc compared with the first three quarters; 2) Profit: in the 21st century, the annual growth rate was 12.7% (Two-year compound growth rate of 6.5%), slightly lower than that in the first three quarters by 0.9pc (mainly due to the relatively high base of 20q4); 3) Asset quality: the non-performing rate (1.34%) decreased steadily by 5bps compared with the end of September, and the provision coverage rate (239%) increased steadily by 7.7pc.
2. From the detailed data of 20 banks that have disclosed their annual reports, further split:
Under the pressure of 3pc, the net interest income of banks rose by 1.4% in the first three quarters of the year, which was 1.0% higher than that of the previous three years;
2) in the case of better promotion of financial transformation and continued high growth of wealth management and other businesses, the growth rate of net income from handling fees and commissions (8.9%) increased by 0.4pc compared with the first three quarters; Other non interest income increased by 32.5% year-on-year, further improving 1pc compared with the first three quarters. In addition to the low base year-on-year in the past 20 years (year-on-year – 5%), most banks’ bond investment income in Q4 was good, and many banks allocated additional fund investment in the second half of the year, driving the high growth of investment income.
3) management expenses increased by 11.6% year-on-year, 5pc higher than the previous three quarters. On the one hand, most banks increased their investment in financial technology. On the other hand, due to the 20-year epidemic support policy, most banks reduced some employees’ social security expenses, and this policy will no longer be applicable in 21 years, resulting in a relatively low base in 20 years (an increase of only 1.8% year-on-year).
4) the provision for the whole year was less than that for the same period last year, releasing profits, with a growth rate of – 4.4%. While the overall asset quality improved, most banks increased the provision under the impact of the epidemic in 20 years, forming a high base (+ 16.4%). According to the annual reports of these banks or the public performance press conference held, we sorted out and split the following hot issues of market concern in detail:
1) credit extension: loans increased steadily, and more retail + bills were invested in the second half of 21 years. The year-on-year growth rate of assets of 20 banks in the whole year of 21 was 7.8%, slowing down by 2.1pc and 0.1pc respectively compared with 20 years and 21h, of which the loan growth was 11.4%, which was basically the same as the growth rate of 20 years and 21h (11.8% and 11.3%).
Structurally, in the second half of the year, banks invested more in retail loans as a whole, and its proportion in total loans (42.5%) increased by 0.6pc compared with 21h. In addition, when the margin of credit demand weakened, the proportion of bills (3.7%) also increased by 0.6pc. 1) At the retail end, compared with 20a, although the proportion of mortgage loans and consumer loans + credit cards decreased by 0.2pc, they all recovered in the second half of the year, increasing by 0.5pc and 0.1pc respectively, and the proportion of operating loans increased steadily by 0.4pc throughout the year (including 0.1pc in the second half of the year). 2) For the public sector, in the second half of the year, it mainly invested in infrastructure (dominated by large state-owned banks), with the proportion of total loans increased by 0.3pc to 25.9%, and the proportion of public real estate loans continued to decline by 0.3pc to 5.7%.
22q1 tracking and annual outlook: banks are willing to invest actively. The annual investment is expected to be no less than that of last year, but it is necessary to observe the recovery of demand. 1) Total amount: the two sessions made it clear to “expand the scale of new loans” this year. It is expected that the loan investment of the whole industry this year will not be less than 20 trillion (the scale in 2021). Most banks also said in the public performance press conference that the annual credit increment in 2022 will not be less than that in 2021, which will form a strong support for social finance in 2022. 2) Demand: however, from the perspective of credit demand, some banks reflect that the current credit demand is not very strong, which is consistent with the trend of bill interest rate. Since March, the interest rates of three-month large state-owned banks + joint-stock banks and urban commercial banks are 1.99% and 2.15% respectively, down 13bps and 16bps respectively compared with the previous month (although it rebounded at the end of March, it may be a seasonal factor). 3) Regionally: the credit demand in some regions (Yangtze River Delta, etc.) is relatively strong. For example, Bank Of Communications Co.Ltd(601328) focuses on the strategic development of the Yangtze River Delta. The credit has increased rapidly in the first two months, and some urban commercial banks have also made positive credit planning this year; 4) Direction of investment: the company mainly focuses on new and old infrastructure, green and manufacturing (high-tech and special precision). Although the demand for consumer short-term loans has weakened in retail, many banks are expected to increase the proportion of retail throughout the year (such as Bank of communications, postal savings, Societe Generale, Everbright, etc.); 5) In terms of bank types: many large state-owned banks reflect that Q1 credit is good, and it is expected that the credit will continue to increase year-on-year this year.
In terms of annual report data and delivery rhythm, large state-owned banks provided credit faster, and their year-on-year growth rate at the end of the year (11.8%) was higher than that of 21h (11.3%), and higher than 10% of joint-stock banks. Mainly due to the steady growth policy, large state-owned banks benefited relatively. When other banks mainly increased the investment of retail loans in the second half of the year, the proportion of infrastructure loans of large state-owned banks continued to increase by 0.4pc to 28.5% compared with 21h (joint-stock banks and urban rural commercial banks decreased by 0.3pc and 0.9pc respectively). It is expected that under the background of 22 years of steady growth, the state-owned banks will continue to increase credit in the real economy and infrastructure. Large banks invest in infrastructure, while other banks focus on retail.
2) net interest margin: the pressure eased marginally in the second half of the year, but it is expected that there will still be some pressure in 22 years. The annual interest margin of 20 banks decreased by an average of 2bps compared with 21h, and that of 13 banks decreased further compared with 21h, but the decline was significantly narrowed (21h decreased by 9bps compared with 20a). Among them: a. the average loan yield decreased by 4bps compared with 21h (21h decreased by 20bps compared with 20a), and the decline narrowed. B. After the reform of deposit self-discipline mechanism, the deposit cost rate still increased slightly by 1bp, or it reflects that the deposit competition is still fierce, and the large banks in China generally decreased (ICBC, Bank of China, Bank of communications and postal savings all decreased by 1bp), but most of the small and medium banks increased.
Looking forward to 2022, most banks feedback that there is still downward pressure on the interest margin, but will actively optimize the structure and maintain the stability of the interest margin. Among them, A. asset side: since December 21, the one-year LPR has been reduced by 15bps, and the interest rate of new loans may be reduced accordingly; B. Liability side: banks have fierce competition for core deposits and deposit costs are relatively rigid, but it is expected that the dividends released by the deposit self-discipline pricing mechanism will still form a certain hedge. On the whole, it is expected that the performance of interest margin will still be differentiated, and the net interest margin of banks with strong comprehensive operation ability of customers can still remain better than that of peers.
3) asset quality: overall improvement, bank differentiation and retail non-performing rate increase.
It has been analyzed that the non-performing indicators of all banks have improved as a whole. From the relatively objective overdue indicators, the proportion of overdue loans of banks as a whole (1.23%) has decreased by 7bps compared with 21h. From the perspective of non-performing generation indicators, the non-performing generation rate (0.68%) and overdue generation rate (0.68%) also decreased by 5bps and 2bps compared with 21h. However, the concern rate of joint-stock banks (1.69%), non-performing generation rate (1.22%) and overdue generation rate (1.36%) increased by 5bps, 13bps and 18bps compared with 21h, partly due to the increased risk of the real estate industry, and some banks (such as China Merchants Bank, Ping An, Societe Generale, etc.) identified the overdue time of credit cards earlier in the second half of the year. However, after excluding this factor, China Merchants Bank, Ping An Societe Generale said that the overall trend of credit card asset quality was better.
In terms of further splitting, the corporate non-performing rate of 20 banks decreased steadily compared with 21h (with an average decrease of 13bps), while the retail non-performing rate of most banks increased (with an average increase of 11 banks compared with 21h), with an average increase of about 1bp, which is still relatively stable. On the one hand, the improvement of the retail non-performing rate is due to the repeated epidemic in the second half of the year, the increased downward pressure on the economy and the increase of the unemployment rate. On the other hand, it is also related to the adjustment of the identification time of non-performing credit cards of some banks. We need to continue to pay attention to the trend of the retail non-performing rate in the future.
4) real estate: the non-performing assets have been exposed, but they are under active management and control, and the relevant provisions are fully accrued.
Scale: a total of 6 banks disclosed the scale of on balance sheet and off balance sheet insured and non insured assets of real estate at the end of 2021, and some banks are gradually reducing the relevant scale.
A. broad exposure on the balance sheet: the overall scale of businesses that undertake credit risk to the company (involving credit, proprietary bonds and non-standard investment, etc.) is relatively limited. Among them, Ping An, Minsheng and Industrial Bank Co.Ltd(601166) account for more than 6% of total assets, accounting for 6.93%, 6.81% and 6.18% respectively, while China Merchants Bank (5.53%) and China Citic Bank Corporation Limited(601998) (4.94%) are relatively low.
B. corporate loans: 20 banks’ overall public real estate loans accounted for 5.7%, down 0.3pc from 21h. In terms of banks, the proportion of joint-stock banks is relatively high (7.7%, down 0.8pc compared with 21h), and the large state-owned banks and urban rural commercial banks are only 5.2% and 3.9% respectively (down 0.2pc and 0.5pc compared with 21h).
C. off balance sheet businesses that do not bear credit risk (financial capital contribution, entrusted loan, cooperative agency management, consignment trust and fund, lead underwriting of debt financing instruments, etc.): China Merchants Bank Co.Ltd(600036) scale is high (RMB 412.1 billion), but the proportion of total assets is only less than 4.5%, and it is being compressed, with a decrease of 106.9 billion over the beginning of the year, of which 2 / 3 is the consignment of financial capital investment, trust and other private products Ping An Bank Co.Ltd(000001) , Industrial Bank Co.Ltd(601166) , China Citic Bank Corporation Limited(601998) , China Minsheng Banking Corp.Ltd(600016) scale accounts for 2.45%, 1.51%, 1.51% and 1.26% respectively.
Risk exposure: most of the non-performing assets have increased, but the provision is sufficient, and most of the projects are mainly in the first and second tier cities. From the perspective of 18 banks that disclosed relevant data, except bank of communications and Ping An Bank Co.Ltd(000001) to public real estate loan non-performing ratio decreased by 0.44pc and 0.35pc compared with 21h, the corporate non-performing ratio of other banks increased, with an average increase of 0.77pc. Most banks said: A. they have responded to risk exposure in advance and made sufficient provision. For example, the loan allocation ratio of China Merchants Bank Co.Ltd(600036) and China Citic Bank Corporation Limited(601998) real estate industry is more than twice that of the whole, which is expected to exceed 8% and 6% respectively Industrial Bank Co.Ltd(601166) the provision coverage of public real estate financing is 305.14%, which is higher than the overall provision coverage of the company by 36pc. B. The project has good qualification and sufficient mortgage. More than 80% of the real estate projects of banks are concentrated in the first and second tier cities, and most of them are fully mortgaged. For example, the credit coverage of high-quality projects is more than 1.5 times of that of class a customers, and only accounts for more than 1.5 times of that of class a projects. All banks have conducted a comprehensive investigation on real estate projects, and the corresponding risk control policies have been actively adjusted, such as customer white list system, classified and hierarchical credit, one policy control for one household, etc. C. Off balance sheet business: it is clear that it will not be just cashed, causing actual losses to bank statements. However, they will actively implement the obligations of the agent, urge the issuer to deal with risks and protect the interests of their customers.
ABS high frequency data tracked the quality of retail assets from January to February: the pressure of non-performing assets fell as a whole. We have counted the four bank credit cards and consumer loan ABS products issued since 2020 and still in renewal ( China Merchants Bank Co.Ltd(600036) 2, Ping An Bank Co.Ltd(000001) 1, Bank Of Ningbo Co.Ltd(002142) 1) to track the recent asset quality trend of bank retail loans, and found:
1) on the whole, the pressure of non-performing products from January to February decreased compared with the end of 21.
A. the increase in the proportion of overdue loans slowed down. At the end of February, the proportion of overdue loans of the four ABS products as a whole was 3.61%, an increase of 0.1pc compared with that at the end of 2021. Month by month, the single month growth rates in January and February were 0.02pc and 0.08pc respectively, and the average monthly growth rate was significantly lower than that in Q4 of 2021 (an increase of 0.30pc in Q4)
