Core conclusion
Event: on April 15, the people’s Bank of China lowered the deposit reserve ratio of financial institutions by 0.25 percentage points (excluding institutions that have implemented 5%), and for urban commercial banks that do not operate across provinces and rural commercial banks with deposit reserve ratio higher than 5%, an additional 0.25 percentage point was reduced on this basis.
The significance of this derating signal is greater than the actual impact. This RRR reduction is slightly lower than the market expectation, mainly due to: 1) the liquidity has been at a reasonable and sufficient level, the average value of dr007 in recent 20 trading days has decreased by 7bp compared with the previous value, and the interbank certificate of deposit interest rate has fallen recently after a sharp rise in the first quarter, reflecting that the pressure on the bank’s liability side has eased. 2) The policy focuses on the inside, but we should still take into account the internal and external balance. 3) Credit is more urgent than money. At present, the crux of steady growth lies not in money supply, but in the lack of effective demand for credit. The signal significance of the action of reducing the reserve requirement will help boost market confidence and reverse pessimistic expectations. The recent frequent policies are aimed at guiding the active supply of credit. 1) Reduce the provision rate and improve the ability and willingness of banks to extend credit. The provision coverage ratio will be appropriately reduced, which is conducive to the release of profits and the expansion of credit. 2) The reduction of the deposit pricing ceiling aims to reduce the pressure on the liability side for small and medium-sized banks, so as to give profits to entities and reduce the financing cost of enterprises. In the future, the regulators may continue to find ways from the bank’s liability side, so as to transfer it to the asset side pricing and realize profit transfer.
How to interpret bank stocks after the RRR reduction? The direct impact is to slow down the cost of debt and boost the interest rate spread. Under the more optimistic assumption, it is estimated that this RRR reduction will increase the interest margin of various listed banks by 0.46-1.01bp, which has the greatest impact on rural commercial banks. Historically, where credit is “wide”, bank stocks will “rise”. At today’s time point, we believe that the top priority of this round of credit easing is credit extension. Banks with “quality, quantity and price” credit extension will fully benefit from this round of credit easing process. Volume assurance is the key to increasing income. After the epidemic is steadily controlled, the business vitality of micro subjects is restored. How to invest the loan amount efficiently will be the key to the bank’s victory. Quality assurance is the basis of profitability, and the asset quality of banks will continue to maintain a steady trend. Banks with repeated quality of public assets caused by real estate risk exposure last year will fully benefit from the marginal recovery of the real estate market. It is difficult to insure, and the liability side can be hedged. It is relatively difficult to maintain the rigidity of asset pricing under the background that the policy advocates profit giving entities, but the profit giving at this stage can be understood as mild profit giving. It is expected that many reform measures on the liability side will continue to release dividends, while the easing policy has not yet ended and will still slow down the cost of bank liabilities.
Investment suggestions: the RRR reduction will release a more positive easing signal. In line with a series of policies, steady growth is expected to continue to promote the upward trend of the banking sector. It is suggested to pay attention to the growth targets with high certainty, especially the high-quality urban and rural commercial banks with higher credit boom, such as Jiangsu, Chengdu, Nanjing, Changshu, etc; Medium and long-term continuous attention to high-quality joint-stock banks, such as China Merchants Bank, Ping An and Xingye; Dahang suggests paying attention to Postal Savings Bank Of China Co.Ltd(601658) , which has outstanding growth, debt advantage and great potential for wealth management.
Risk tip: the steady growth policy is not as expected; Repeated outbreaks have led to deterioration of asset quality; Poor credit boom, etc.
