Banking industry research weekly: "reducing provisions and standards" to protect banks

Talk every Monday about "reducing provisions and standards" to protect banks

The national Standing Committee encourages large banks with high provision level to reduce the provision coverage

On April 13, the executive meeting of the State Council pointed out that in view of the changes in the current situation, large banks with high provision level are encouraged to reduce the provision coverage in an orderly manner. In retrospect, there have been two cases in which the policy required to reduce the provision coverage in the past, namely, March 2018 and may 2020. Both policies are aimed at strengthening the disposal of non-performing banks and increasing the supply of bank credit.

In March 2018, the CBRC issued the notice on adjusting the regulatory requirements for loan loss reserves of commercial banks, which made it clear that the regulatory requirements for provision coverage ratio were adjusted from 150% to 120% ~ 150%, and the regulatory requirements for loan provision ratio were adjusted from 2.5% to 1.5% ~ 2.5%.

In May 2020, the CBRC issued the notice on the phased adjustment of the regulatory requirements for loan loss reserves of small and medium-sized commercial banks, which made phased adjustments to the regulatory requirements for loan loss reserves of small and medium-sized commercial banks. The regulatory requirements for the provision coverage rate of relevant institutions are adjusted from 120% ~ 150% to 100% ~ 130%, and the regulatory requirements for the loan provision rate are adjusted from 1.5% ~ 2.5% to 1.5% ~ 2%.

This policy is mainly aimed at large banks. According to the data released by the China Banking and Insurance Regulatory Commission, the provision coverage rate of large commercial banks in 2021 was 239.22%, which still has a large space from the regulatory provision coverage requirements. This time, the provision coverage of large banks is reduced:

On the one hand, it can guide large commercial banks to release profits. In the past, banks usually made excessive provisions, which enhanced the bank's risk offset ability, but also led to the increase of provision coverage and the erosion of profit growth. This time, large banks with high provision level are encouraged to reduce the provision coverage in an orderly manner, which can guide the profit release of large commercial banks and ensure the supplement of endogenous capital of banks while ensuring the financial dividend income.

On the other hand, it can guide large commercial banks to strengthen non-performing disposal and improve loan risk tolerance. Generally, large banks have low risk appetite. This time, large banks with high provision level are encouraged to reduce the provision coverage in an orderly manner, which means that the tolerance for non-performing loans increases, which will be conducive to the sinking of risk appetite of large banks, and encourage large banks to increase their support for industries seriously affected by the epidemic, small and medium-sized micro enterprises and individual industrial and commercial households.

The central bank lowered the reserve requirement to ease the downward pressure on the net interest margin of banks

The central bank decided to reduce the deposit reserve ratio of financial institutions by 0.25 percentage points on April 25, 2022 (excluding financial institutions that have implemented the 5% deposit reserve ratio). In order to increase the support for small and micro enterprises and "agriculture, rural areas and farmers", for urban commercial banks without inter provincial operation and agricultural commercial banks with deposit reserve ratio higher than 5%, an additional 0.25 percentage point will be reduced on the basis of reducing the deposit reserve ratio by 0.25 percentage point. After this reduction, the weighted average deposit reserve ratio of financial institutions is 8.1%.

Under the background that the policy continues to emphasize reducing the comprehensive financing cost of enterprises, the net interest margin of banks is under great pressure. From the Bank Of Nanjing Co.Ltd(601009) net interest margin of the disclosed quarterly report, 22q1 Bank Of Nanjing Co.Ltd(601009) net interest margin was 1.83%, down 5bp from 2021. The RRR reduction aims to alleviate the downward pressure on the net interest margin of banks. The RRR reduction reduces the capital cost of financial institutions by about 6.5 billion yuan per year. It is estimated that it can reduce the debt end cost of banks by about 0.2bp.

Investment strategy: on the whole, from the financial data released in March, the demand for real loans is still weak. The national regular meeting encourages large banks to reduce provisions and the central bank's announcement of RRR reduction will help alleviate the pressure on asset quality and net interest margin faced by banks and increase banks' support for the real economy. It is suggested to pay attention to Postal Savings Bank Of China Co.Ltd(601658) , China Construction Bank Corporation(601939) , Ping An Bank Co.Ltd(000001) , Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) .

Risk tip: policy risk; The risk of macroeconomic recovery falling short of expectations; Covid-19 is at risk of continued deterioration.

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