Event: Recently, some policies and regulatory data of the banking industry have been released one after another. Our comments are as follows:
The RRR reduction was implemented as scheduled, and the steady growth policy was further strengthened. On the evening of April 15, the people's Bank of China announced the policy of reducing the deposit reserve ratio. The impact on banks is as follows:
① this is a combination of "comprehensive RRR reduction + directional RRR reduction". The weighted average deposit reserve ratio of financial institutions was reduced by 0.3 percentage points to 8.1%, which was smaller than the previous reduction of 0.5 percentage points, slightly lower than the market expectation. On the basis of the overall RRR reduction, there are no inter provincial urban commercial banks and rural commercial banks with a deposit reserve ratio higher than 5%. The RRR reduction is larger and is expected to benefit more, mainly including Bank Of Suzhou Co.Ltd(002966) , Bank Of Qingdao Co.Ltd(002948) , Bank Of Zhengzhou Co.Ltd(002936) , Bank Of Xi'An Co.Ltd(600928) and all listed rural commercial banks.
② lowering the reserve requirement will boost the growth of net interest margin and net profit. Assuming that the funds released by the RRR reduction will be invested according to the average rate of return of interest bearing assets of banks, it is estimated that the RRR reduction will boost the net interest margin of commercial banks by 0.46bp in 2022 and the net profit growth of commercial banks by 0.39pc in 2022. For listed banks, the net interest margin was boosted by 0.58bp and the profit growth before provision in 2022 was boosted by 0.23pc, among which Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) , Bank Of Suzhou Co.Ltd(002966) and other small and medium-sized banks improved significantly.
③ the purpose of this RRR reduction is to broaden credit and reduce costs. In the first quarter of this year, commercial banks increased their credit supply and realized a year-on-year increase in new credit on the basis of last year's high base. However, there is a large differentiation between regions. There is a booming supply and demand of credit in the Yangtze River Delta and Chengdu Chongqing economic circle. In the future, commercial banks still bear the responsibility of supporting the real economy. Therefore, the central bank hopes to reduce the reserve requirement, optimize the capital structure of financial institutions and increase the long-term stable source of funds of financial institutions, Strengthen the capital allocation capacity of financial institutions and increase support for the real economy; Guide financial institutions to actively use the funds for reducing the reserve requirement to support industries and small, medium and micro enterprises seriously affected by the epidemic.
In addition, the capital cost saved by reducing the reserve requirement is transmitted to the enterprise end to reduce the comprehensive financing interest rate of social finance and realize the effect of cost reduction.
Deposit costs are expected to improve. According to Caixin, recently, the self-discipline mechanism of market interest rate pricing held a meeting to encourage some small and medium-sized banks to reduce the floating upper limit of deposit interest rate by about 10bp; This requirement should not be mandatory, but the bank making the adjustment may be beneficial to its MPa assessment. ① Small and medium-sized banks are expected to benefit more from time deposits. In June last year, the people's Bank of China guided the interest rate self-discipline mechanism and changed the self-discipline upper limit of deposit interest rate from the floating multiple of deposit benchmark interest rate to plus point. After that, the new cost of medium and long-term deposits in September last year has been significantly lower than that in May last year. The self-discipline mechanism encourages small and medium-sized banks to reduce the upper limit of interest rate by 10bp, highlighting the appeal of regulators to protect the debt cost of banks. The debt cost of small and medium-sized banks with high debt cost and high proportion of medium and long-term deposits is expected to decline.
② impact on bank fundamentals. At present, the market is more concerned about whether the LPR will decline in the future. In fact, under the current environment, the spontaneous contraction of financing demand has been able to drive the decline of loan interest rate. We note that the new loan interest rate in March was 4.37%, down 8bp from December last year; In the first quarter of this year, the interest rate of new inclusive small and micro loans decreased by 25bp compared with the beginning of the year. Whether LPR goes down or not will not affect the downward trend of enterprise financing costs.
For banks, regulators improve the cost of bank liabilities in various ways, and then transmit it to the decline of financing cost of the real economy. In this process, there may be pressure on the bank's net interest margin and medium income. However, compared with the stage of unilateral profit transfer from banks to the real economy in previous years, the pressure on the fundamentals of banks may be less. Even if the subsequent LPR is lowered, the impact on the bank's net interest margin can also be partially hedged through the improvement of debt cost.
Credit risk was further mitigated and asset quality was stable and improved. The China Banking and Insurance Regulatory Commission disclosed that the non-performing rate of banking financial institutions was 1.79% at the end of the first quarter of this year, down 3 bp from the end of last year. After being impacted by the epidemic, the non-performing rate of the banking industry rose to 2.1% at the end of the second quarter of 2020. In the past two years or so, the current non-performing rate has dropped 31 BP from the peak of the epidemic, mainly because banks have significantly increased the disposal of non-performing loans for two consecutive years and the credit risk has been cleared.
From the perspective of provision, at the end of the first quarter of this year, the provision coverage increased to 199.5%, 7.1pc higher than that at the end of the third quarter of last year, and the ability of banks to resist risks was further enhanced. Based on the improvement trend of asset quality and provision coverage of banking financial institutions, we expect the credit risk index of listed banks in the first quarter of 2022 to be stable and better than that at the end of the fourth quarter of last year.
Recently, the CBRC mentioned that "we encourage large banks with high provision and other high-quality listed banks to gradually return the actual provision coverage to a reasonable level, guide banks to make use of the advantages of high provision and strengthen the write off and disposal of non-performing assets.", Therefore, from the perspective of supervision, reducing the provision rate does not require banks to increase bad debts. In fact, it is hoped that banks will strictly identify non-performing loans and accelerate the write off and disposal of non-performing loans. In this process, the provision will be consumed, the provision level will be reduced, and the credit resources released after the disposal of non-performing loans will be invested into the real economy, and the bank's credit delivery capacity will be significantly enhanced.
Overall, although the current demand for the real economy is still weak, the regulators' intention to stabilize credit and expectations has increased significantly. Steady growth is still the main line of the market, and the allocation of bank stocks is a very cost-effective choice.
① at present, the focus is on the performance of the first quarter report, and regional banks with fast credit supply and some large state-owned banks with growth can be selected;
② from the perspective of steady growth, since the beginning of the year, the number of banks benefiting from the growth of infrastructure credit has increased significantly; The follow-up real estate policy is further relaxed. It is expected that the valuation of banks dragged down by real estate risk exposure on stock prices in the early stage is expected to rise.
③ key recommended targets: Bank Of Ningbo Co.Ltd(002142) , Postal Savings Bank Of China Co.Ltd(601658) , Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) , China Merchants Bank Co.Ltd(600036) , Ping An Bank Co.Ltd(000001) , Industrial Bank Co.Ltd(601166) .
Risk tip: the steady growth policy is less than expected, and the risk exposure of the real estate industry is accelerated
