Ping An View:
Performance summary: as of March 31, 2022, a total of 22 listed banks have disclosed the annual report of 2021. In 2021, the net profit of major listed banks increased by 13.2% year-on-year, 0.8pct slower than 14.0% in the first three quarters of 2021. In terms of individual stocks, among large and medium-sized banks, Ping An (YoY + 25.6%), Societe Generale (YoY + 24.1%) and China Merchants Bank (YoY + 23.2%) grew rapidly.
Performance attribution: We conducted attribution analysis on the growth rate of net profit in the annual report of listed banks for 21 years. From the decomposition of various factors driven by the growth rate of net profit: 1) the main positive contributing factor: provision. In 2021, the net profit contributed by the provision of listed banks increased by 8.8 percentage points. Under the stable operation of asset quality, the normalization of the provision is still the main factor to promote the significant increase of the profit growth of listed banks. 2) Interest rate spread is still the main negative factor. In 2021, the interest margin of listed banks made a negative contribution of 4.8 percentage points to earnings, which was mainly affected by the decline of asset side pricing in the past 21 years. 3) The contribution of scale expansion and medium income has increased steadily. In 2021, the scale of the whole year made a positive contribution to earnings by 5.6 percentage points (vs + 4.8% in the first three quarters). The middle income contributed 2.4 percentage points to the profit (vs + 2.0% in the first three quarters). 4) It is worth noting that, driven by the investment income, the contribution of other non interest has increased significantly. In 2021, it has made a positive contribution to the profit by 4.8 percentage points (vs + 5.3% in the first three quarters).
The scale expanded and stabilized, and the growth rate of deposits and loans was repaired. From the scale indicators of listed banks, the overall asset scale growth rate of major listed banks at the end of 2021 was higher than that of Q3, with total assets increasing by 7.8% (vs6.9%, 21q3) year-on-year, of which the loan growth rate increased by 11.3% (vs10.9%, 21q3) year-on-year, stabilizing and recovering, which was in line with our previous expectations for the effect of stabilizing credit policies. The most obvious growth rate is the large-scale banks. Since the second half of 2021, the downward pressure on China’s economy has increased significantly under the combined influence of local government debt, real estate, dual control of energy consumption and other regulatory policies and the epidemic. Looking forward to 2022, with the support of a mild policy environment, the fundamentals of banks are expected to remain stable. In terms of deposits, the growth rate of deposits at the end of 2021 increased by 0.9pct to 7.2% compared with Q3. The growth rate of various types of institutions has rebounded, among which the growth rate of deposits of large banks has increased by 0.8pct to 7.2% compared with Q3.
Interest rate spreads fell month on month, and asset side pricing was under pressure. According to the annual report data, the annual net interest margin of major listed banks in 2021 was 2.16%, down 2bp month on month in the first half of the year. We believe that it is mainly related to the pressure on asset side, especially loan pricing. The yield of interest bearing assets of major listed banks in 2021 was 4.25%, down 2bp month on month in the first half of the year. Combined with the data of some listed banks that disclosed the asset side pricing in a single quarter, we can see that the asset side loan pricing has not yet gone out of the downward channel. The cost of deposits on the liability side is relatively stable. In 2021, the cost rate of interest bearing liabilities of major listed banks was 2.21%, unchanged from the first half of the year. Looking forward to the next quarter, the downward pressure on the economy will increase. It is expected that there will still be further downward pressure on asset side pricing, and the improvement of liability side cost rate is relatively limited. On the whole, we believe that there will still be downward pressure on the interest margin performance of listed banks.
The marginal growth of medium income slowed down, which was affected by the base drag effect. In 2021, the main listed banks achieved a year-on-year increase of 6.7% in the net income from handling fees and commissions, a decrease of 0.2 percentage points compared with Q3, and the proportion of industry revenue in revenue also decreased by 0.6 percentage points compared with Q3. We believe that it is mainly due to the impact of the high base effect in the same period last year and the slowdown of income growth of consignment funds caused by the fluctuation of capital market in the second half of the year. However, from an individual point of view, banks with leading wealth management system construction and more flexible system and mechanism still achieved rapid growth. Among large and medium-sized banks, postal savings (YoY + 33.4%), CITIC (YoY + 24.4%) and China Merchants Bank (YoY + 18.8%) led the growth.
The cost income ratio increased slightly, and the investment in financial technology increased. In 2021, the industry’s business and management fees increased by 13.5% year-on-year, and the cost investment speed further improved (vs8.6%, 21q1-3). We believe that it is related to the increased investment in financial technology in the industry. Among them, the investment in financial technology of large and medium-sized banks increased by 11.4% year-on-year in 2021, and the proportion in revenue increased by 9bp to 3.09% year-on-year. The cost income of major listed banks rose slightly compared with the whole, up 1.4 percentage points to 29.4% compared with the same period in 2020.
Asset quality remains stable, and potential risks still need to be vigilant. The performance of the overall asset quality of the industry remained stable. At the end of 2021, the non-performing rate of major listed banks continued to decline by 5bp to 1.34% month on month, which was lower than the pre epidemic level. The provision coverage level increased by 8% to 239% month on month compared with Q3, and the allocation ratio decreased by 1bp to 3.19%. In terms of forward-looking indicators, we observed that the attention rate and overdue rate of some listed banks have increased. On the one hand, it is affected by the adjustment of the recognition time point of overdue credit cards. On the other hand, it is mainly related to the tense capital chain and overdue interest of individual enterprises under the background of increasing macroeconomic downward pressure. Looking forward to the follow-up, considering that the strict supervision of urban investment real estate and the expiration of the policy of delaying the repayment of principal and interest may bring some disturbance to the asset quality of the industry, the change trend of the asset quality of the industry in the future is worth observing. However, we believe that under the bottom line thinking of supervision, the probability of large-scale credit risk release is small, and the superposition of the overall bad burden of the industry has been resolved relatively fully in the past 3-4 years. It is expected that the pressure of bad debt generation of banks can be controlled, Asset quality performance is expected to remain stable.
Investment suggestion: Policy correction is expected to improve, and continue to be optimistic about valuation repair. According to the annual reports of listed banks currently disclosed, under the downward pressure of the economy in the fourth quarter of 21, the fundamentals of most listed banks remained stable, the growth rate of revenue increased steadily, the quality of assets was generally stable, the two ends of assets and liabilities expanded steadily, and the profit growth rate maintained high growth. Looking forward to the second quarter of 2022, with the force of steady growth policy and the correction of real estate policy, the industry will still be in the channel of negative expectation improvement. At present, the static valuation level of the sector is only 0.64x, which is still at an absolute low in history, and the margin of safety is sufficient. We are still optimistic about the valuation repair opportunities of the banking sector. 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) macroeconomic downturn leads to higher than expected pressure on industry asset quality. 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.
