Core view:
Incident Premier Li Keqiang chaired a State Council executive meeting to determine measures to increase financial support for the real economy and guide market players to reduce financing costs.
Monetary policy will be further relaxed and stable. Market expectations. In addition to deploying to promote consumption and increase export tax rebates, the meeting decided to encourage large banks with high provision levels to reduce the provision coverage in an orderly manner, and timely use monetary policy tools such as RRR reduction to promote banks to enhance their ability to provide credit. Overall, the pattern of steady growth and wide credit remains unchanged. We will simultaneously stimulate credit demand from both volume and price, reduce financing costs, help enterprises cope with the impact of repeated epidemics and weak economic growth, and stabilize market expectations.
The RRR reduction will help improve the cost of bank liabilities, stabilize the net interest margin and support the rational transfer of interest. We expect that the transfer of interest will have a limited impact on the bank interest margin. Compared with unilateral interest rate reduction and other forms of transfer, the RRR reduction is more suitable for the requirements of market-oriented and legalized transfer of interest, can release low-cost funds to a certain extent, reduce the bank’s dependence on the issuance of interbank liabilities and debt instruments, optimize the debt structure and reduce the cost of liabilities, Enhance the ability of banks to serve the real economy and reduce financing costs.
The reduction of provision will release profits and guide banks to increase credit. At this stage, the conditions for banks to reduce provision are relatively mature. After the early write off disposal, the quality of banking assets has been greatly improved, and the non-performing rate is at a low level in recent years. Combined with the impact of the correction of real estate policy implementation and the steady resolution of credit risk, the current provision of the bank is sufficient, and there is a certain room for reduction without affecting the basic risk control needs of the bank. By the end of 2021, the non-performing rate and provision coverage rate of commercial banks were 1.73% and 196.91%, which were better than the pre epidemic level. The non-performing rate and provision coverage rate of large commercial banks were better, at 1.37% and 239.22%. At the same time, the reduction of provision is expected to release profits, supplement core Tier-1 capital and expand credit supply space. We expect that under the head goose effect of large banks, high-quality small and medium-sized banks can also use provision adjustment to meet the capital supplement demand under the high growth of credit.
Infrastructure, manufacturing, small and micro enterprises, consumption or multi-point efforts, pay attention to the table expansion policies of high-quality small and medium-sized banks in some regions, and continue to guide credit improvement. Low risk high-quality infrastructure projects are expected to remain the main focus, which is expected to leverage the growth of supporting credit demand in many fields. At the same time, high-end manufacturing, small and micro enterprises and consumer finance may continue to benefit from the influence of relevant policies such as inclusive small and micro loan support tools, special refinancing for scientific and technological innovation and new citizen financial services. They are facing the opportunity of capacity expansion, and small and medium-sized banks in Jiangsu, Zhejiang, Chengdu and Chongqing are expected to benefit.
Investment suggestions: in combination with the provisions for the reduction of reserve requirements and the relevant requirements of monetary policies in the early stage, continue to be optimistic about the investment opportunities in the banking sector under the environment of stable growth and wide credit, and pay attention to three main lines: (1) high quality urban and rural commercial banks with significant location advantages, strong demand for infrastructure, small and micro enterprises, manufacturing industry, strong momentum of expansion and excellent asset quality. Bank Of Ningbo Co.Ltd(002142) ( Bank Of Ningbo Co.Ltd(002142) ) and Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) ( Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) ) are recommended, Pay attention to Bank Of Chengdu Co.Ltd(601838) ( Bank Of Chengdu Co.Ltd(601838) ) and Bank Of Jiangsu Co.Ltd(600919) ( Bank Of Jiangsu Co.Ltd(600919) ); (2) For large state-owned and joint-stock banks with leading provision coverage and expected profit release, China Merchants Bank Co.Ltd(600036) ( China Merchants Bank Co.Ltd(600036) ) and Postal Savings Bank Of China Co.Ltd(601658) ( Postal Savings Bank Of China Co.Ltd(601658) ) are recommended. (3) Ping An Bank Co.Ltd(000001) ( Ping An Bank Co.Ltd(000001) ) and Industrial Bank Co.Ltd(601166) ( Industrial Bank Co.Ltd(601166) ) that benefit from the improvement of business environment and have repair space.
The risk indicates that the macroeconomic growth is lower than expected, resulting in the risk of deterioration of asset quality.
