Key investment points
The growth of revenue is accelerated, and the achievements are divided equally between volume and price; From 2019 to 2021, the average compound growth rate of net profit attributable to the parent company increased to 6.5%, and the provision back feeding was the main reason.
In 2021, the revenue of listed banks increased by 8% year-on-year, rebounded quarter by quarter throughout the year, and the growth of interest bearing assets is still the leading positive contribution. But more importantly, the negative contribution of narrowed interest margin to revenue continued to decrease from 7.2% in 1q21 to 4.9% at the end of 21.
What is in line with our summary judgment of the performance of the third quarterly report in 2021 is that the positive contribution of 4q21 provision back feeding to profit growth began to decrease marginally, which is also the main reason for the slight slowdown of the annual performance growth compared with 9m21. However, if the time dimension is extended, the average compound growth rate of the performance of listed banks in the past two years has steadily increased to 6.5%. The provision back feeding driven by the mitigation of cost pressure in the past year is the most important factor.
The inter-bank credit boom is obviously differentiated. In the next stage, we will pay attention to the elasticity of demand improvement of high-quality regional enterprises after the epidemic subsides.
In 2021, loans increased by 11.2% year-on-year. Among them, large banks and some urban commercial banks have more sufficient reserves for public infrastructure projects. 4q21 loans maintain rapid growth. Bank credit in some central and western regions is weak, and the impulse of bills is obvious. This trend will continue in the first half of this year; However, the demand of small and medium-sized enterprises in high-quality areas around Jiangsu and Zhejiang is relatively strong.
Looking forward to this year, the credit supply of big banks will play a role in stabilizing the basic market, but the current demand of real enterprises has yet to be repaired. The prosperity of different bank loans continues to be differentiated. We will focus on areas with greater flexibility in the improvement of real demand. Two tips: ① after the epidemic eases, the epidemic prevention policy will be relaxed and superimposed. ② after the 2.5 trillion tax rebate fund is in place, the manufacturing industry and small and micro enterprises may take the lead in realizing profit restoration, For banks that focus on such customer groups in high-quality areas, credit growth may be better than peers. Compared with 2020, if the epidemic is properly controlled, the demand for small and micro credit is expected to be significantly repaired in the next 1-2 months.
The month on month decline of interest rate spread narrowed, the drag margin on performance growth decreased, and the asset side may be the core of interest rate spread differentiation in 2022.
It is estimated that the net interest margin of listed banks in 2021 will be 2.19%, narrowing by 11bps year-on-year, including 2h21 net interest margin of 2.17%, narrowing to 4bps month on month (1h21 decreased by 7bps month on month compared with 2h20). China has a large interest rate spread, which is stable as a whole; There are some differentiation among joint-stock banks, among which the interest rate spread in the fourth quarter such as China Merchants Bank, Societe Generale and Ping An is relatively stable. Some agricultural and commercial banks, such as Changshu, continued the upward trend of interest rate spread.
The narrowing of loan pricing is the core driving force for the stabilization of interest rate spread. The setting tone of reducing physical financing costs remains unchanged in 2022, but there is still room for structural optimization and stable pricing performance. The effective demand of different banks is differentiated, and the interest margin performance of urban rural commercial banks in high-quality areas is expected to be better than that of the industry.
The improvement of debt cost is also a hero. In 21 years, the deposit cost decreased 2bps to 1.99% year-on-year, helping to stabilize the interest margin. Looking forward to 2022, there will be upward pressure on the marginal cost of deposits (especially in regions with relatively fierce deposit competition), but it is expected to be stable on the whole. The current loose inter-bank market liquidity is a more friendly environment for the improvement of the cost of active debt. Superimposed with the early reduction of reserve requirement and the reform of deposit pricing ceiling, the dividend can be released. We can be relatively optimistic about the cost of debt this year.
The asset quality is stable and positive, and the trend remains unchanged. The leading indicators of non-performing of some banks have rebounded. Focus on high-quality banks in 2022.
In 2021, the non-performing rate of listed banks decreased 5bps to 1.34% quarter on quarter, realizing five consecutive quarters of decline; The provision coverage rate is close to 240%, the highest level since 2014. In the current four consecutive quarters, the bank’s provision for non-performing assets and write off rate of non-performing assets are below 100bps.
From the perspective of individual stocks, there are positive aspects and aspects that need to be paid attention to: 1) China Merchants Bank, Societe Generale, Ping An and other banks take the initiative to disclose the risk exposures of real estate and local financing platforms in response to market concerns. In fact, the risks of real estate enterprises involved by these banks are better than market expectations. 2) Some banks are still in the release stage of non-performing risk of public loan issuance, and the concern rate of 9 banks continues to rise month on month due to the adjustment of credit card overdue standard. The asset quality of small and medium-sized real estate enterprises and consumer loans still needs to be closely tracked.
Therefore, when there are still hidden worries in the current market, we suggest investors focus on banks with excellent asset quality, which should enter the roe recovery cycle. The DuPont decomposition shows that the pre provision profitability of listed banks has been basically stable since 2016, and the narrowing of roe is rooted in the rise of credit costs. In other words, for banks with excellent asset quality, the objective factors restricting the recovery of roe should be removed. Based on the current generation of non-performing assets, the roe of all banks generally has 2-4pct room for improvement compared with 2021, that is, before the roe rises to the corresponding upper limit, all banks still have sufficient performance release capacity.
Investment analysis opinion: in 2022, bank stock selection should have both “strong assets” and “low risk”, both of which are indispensable. It is expected that small and medium-sized banks will be the home this year. Banks in economically developed areas (especially in Jiangsu and Zhejiang) have strong regional demand, and the prosperity of credit growth is much better than that of the whole country. At the same time, the cash by cash effect of strategic structural adjustment can also achieve better interest margin performance than peers. ① The first is Wuxi Rural Commercial Bank Co.Ltd(600908) , Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) ; In the city commercial bank Bank Of Nanjing Co.Ltd(601009) , Bank Of Ningbo Co.Ltd(002142) . ② For high-quality track stocks with oversold share price and extremely low valuation, they also have excellent allocation value. The first one is Industrial Bank Co.Ltd(601166) , including China Merchants Bank Co.Ltd(600036) , Ping An Bank Co.Ltd(000001) . At the same time, pay attention to the valuation and repair opportunities of H-share banks.
Risk tips: ① the duration of the epidemic in China exceeded expectations and the epidemic prevention policy continued to upgrade; ② The effect of the steady growth policy was lower than expected, and the macro economy fell sharply; ③ Real estate, urban investment platform, consumer loans and other non-performing risk exposure.
Note: if not annotated, the statistical caliber of this report is 16 listed banks, which are state-owned banks: ICBC, China Construction Bank, Bank of China, Bank of communications and postal savings bank; Joint stock banks: China Merchants Bank, CITIC, Minsheng, Societe Generale, Everbright and Ping An; City firm: Suzhou; Agricultural commercial banks: Changshu, Jiangyin, Zhangjiagang, Chongqing Agricultural.
