In order to guide banks to better support the real economy, the central bank, the China Banking and Insurance Regulatory Commission and the national Standing Committee issued a series of policies this week, among which the most noteworthy ones include:
1) standard reduction: while reducing the standard by 0.25pc, for urban commercial banks that do not operate across provinces and rural commercial banks with deposit reserve ratio higher than 5%, an additional standard reduction of 0.25pc (from the situation of listed banks, it can benefit 6 urban commercial banks of Bank of Guiyang, Zhengzhou, Qingdao, Xi’an, Suzhou and Lanzhou, as well as all listed rural commercial banks). The RRR reduction released a total of 530 billion yuan of liquidity, which was implemented on April 25.
2) encourage some small and medium-sized banks to reduce the upper limit of floating deposit interest rate by about 10bps (according to the reports of Shanghai Securities News and other news media), and include the bank’s behavior of reducing deposit interest rate into MPa assessment. Banks with less bonus points will get more bonus points in the assessment.
3) encourage high-quality banks to reduce provision coverage. 4.14 the national Standing Committee and the CBRC mentioned on 4.15 that “large banks and other high-quality listed banks with high provision coverage are encouraged to gradually return the actual provision coverage to a reasonable level”.
In recent years, bank loans have been put in relatively fast (with a growth rate of more than 11%), and behind this: A. from the perspective of debt funds, banks need to reduce reserve requirements and reduce their cost pressure; B. We also need more profits to supplement capital endogenously to better support the real economy. From the policy intention of this series of combination boxing, it is more pragmatic to provide liquidity and low-cost funds for banks from the perspective of bank operation, standardize the deposit competition in the industry, and reduce the capital and operating costs of banks, so as to enable banks to better support the real economy.
The direct impact of the implementation of the three policies: reducing costs, thickening profits and benefiting high-quality banks with strong core pricing ability.
1) reserve requirement reduction: release low-cost funds, calculate and support the industry interest margin of 0.5bp and profit of about 0.3pc. This RRR reduction will release about 5300 trillion long-term funds and reduce the capital cost of financial institutions by about 6.5 billion yuan per year. According to the simple static calculation of the data at the end of the 21st century (assuming that the released funds are evenly invested in interest bearing assets), it can effectively support the interest margin of the whole industry by about 0.5bp and increase the profit by about 0.3pc. Among them, the banks with strong pricing advantage in urban rural commercial banks can increase the interest margin by about 1-2bps due to the higher rate of return on interest bearing assets and the additional 0.25pc reduction support for some banks.
2) encourage deposit “interest rate reduction”: pay attention to the actual landing effect. Simple calculation can support the industry interest margin of 2bps and the profit of about 1.7pc.
A. since 2019, the regulators have actively launched various policies to standardize the deposit competition in the industry and guide the decline of “risk-free interest rate of the whole society” while reducing the cost of bank deposits. For example, the “false structured deposits” were strictly investigated in 2019; In 2020, we will rectify “innovative products such as interest calculation by file”, require some joint-stock banks to reduce structural deposits to 1 / 3 of the beginning of the year, and standardize Internet deposit products; In June 2021, the “reform of deposit self-discipline mechanism” was promoted, which was adjusted from the original “floating a certain percentage of benchmark interest rate” to “benchmark interest rate + floating points”. According to the data of the central bank, after the reform of deposit self-discipline mechanism, the newly absorbed 1-year, 3-year and 5-year deposits decreased by 4bps, 43bps and 45bps respectively compared with those before the reform, effectively reducing the overall deposit interest rate level of the banking industry. Considering that after the net worth transformation of most financial products in 2021, especially after the yield of some financial products in 22q1 “broke the net”, deposit products have become the real “risk-free interest rate” of most residents. This time, encouraging small and medium-sized banks to reduce the upper limit of deposit interest rate is conducive to the decline of risk-free interest rate in the whole society, better reduce broad-spectrum financing costs and enhance market confidence.
B. compared with the previous deposit related policies, most of them have a certain “mandatory”. The policy of encouraging interest rate reduction this time is more reflected in the characteristics of “marketization”, that is, banks have a certain “selectivity”. Many banks can choose to reduce the deposit interest rate to obtain extra points on the MPA assessment, so as to better support the expansion of broad credit scale. Some banks may choose not to reduce or less (less than 10bps). Considering that the deposit side advantage of most small and medium-sized banks is obviously lower than that of large banks, the actual implementation of the final policy deserves attention. According to the 2021 annual report data of listed banks, we assume that the deposit (including demand) interest rate of the whole industry within three months will eventually decrease by 2.5bps (the current upper limit of demand deposit interest rate is only 0.55%, and the possibility of final decrease of 10bps is low), and the deposit interest rate of three months and above will decrease by 5bps. Considering the repricing factor (repricing 50% this year), it is estimated that it will drive the comprehensive deposit interest rate of listed banks to decrease by 3bps, support the interest margin of 2bps and make a profit of about 1.7pc.
It is worth noting that the above is only a simple calculation: for banks, the competition for deposits is still very fierce. The final landing depends on the guidance of self-discipline institutions in various provinces and the actual competitive pressure. Especially for urban commercial banks, under the current trend of centralized collection of social security funds (conducive to large banks) and bidding of Financial deposits, the absorption pressure of deposits of small and medium-sized banks is still relatively large, The policy of encouraging “interest rate reduction” also depends on the effectiveness of bank landing.
C. banks with strong core deposit advantages will benefit more. According to the data of the central bank, the current upper limit of various deposit interest rates of large non-state-owned banks is the benchmark interest rate + 75bps. It is estimated that the upper limits of current, three-month, one-year and three-year deposits are 0.55%, 1.85%, 2.25% and 3.50% respectively. From the data of listed banks, the deposit cost rates of large state-owned banks, joint-stock banks and urban rural commercial banks in 2021 were 1.64%, 1.98% and 2.16% respectively. The overall deposit competition of small and medium-sized banks is at a disadvantage, and there is little room for “choice” in this interest rate reduction (their customers are more sensitive to the deposit cost, and there is great pressure to reduce interest rates). While banks with strong core deposit advantages, such as large state-owned banks and China Merchants Bank (the deposit cost rate is only 1.41%), benefit from the reform of deposit self-discipline mechanism, their customers are less sensitive to deposit interest rates, and have more choice between reducing a certain deposit interest rate, improving MPa assessment performance and maintaining the stability of deposit scale.
3) encourage high-quality banks to reduce provision coverage, or partially reduce credit costs and release profits. From the perspective of the industry, reducing the provision coverage may mean that the molecular end reduces the credit cost, thickens the profit and endogenously replenishes the capital, so that banks can invest more loans and support the economy. According to the relevant statements in the financial rules for financial enterprises (Exposure Draft) issued by the Ministry of Finance in 2019, assuming that “300%” is a relatively reasonable provision coverage standard, according to the data of listed banks that disclose relevant data, the provision coverage of 15 listed banks is higher than 300% (mainly urban commercial banks and rural commercial banks), only Postal Savings Bank Of China Co.Ltd(601658) (419%) among large state-owned banks and China Merchants Bank Co.Ltd(600036) (484%) among joint-stock banks. The actual profit release effect in the future also depends on a series of factors such as income growth, changes in asset quality, provision of other non credit assets and so on.
Further impact: guide banks to better serve entities. According to the previous calculation, this RRR reduction + encouraging deposit interest rate reduction can effectively reduce bank costs and support the interest margin (it is estimated to support 0.5bp and 2bps respectively), which is equivalent to a one-year LPR reduction of 5bps in the future (it is estimated to have a negative impact on the interest margin of about 2bps).
Since December, 2021, after comprehensively considering the impact of one-year LPR reduction of 15bps, five-year LPR reduction of 5bps, two reserve requirement reductions (general reduction of 0.75pc), the reform of deposit self-regulation mechanism and the encouragement of interest rate reduction, without considering other factors such as investment assets and inter-bank interest rates, the bank interest margin has risen slightly by 1bps, which can support further LPR reduction in the future to support the real economy, and pay close attention to the latest LPR pricing on April 20.
From a comprehensive point of view of bank stocks: This RRR reduction + encouraging deposit interest rate reduction and provision reduction is not only conducive to thickening bank profits, but also opens up space for banks to better support entities in the future. From a more core logic point of view, although the current economic pressure is relatively large, it has been reflected in the current undervalued value of 0.63xpb. From the perspective of bank stock price, the market pays more attention to the expectation of economic improvement. That is, the provision of low-cost funds, measures to alleviate bank operating costs, and a series of policy “combination punches” such as the continuous implementation of projects related to steady growth, the continuous promotion of “actual workload” and the gradual relaxation of real estate related policies are conducive to supporting the expectation of subsequent improvement of the real economy, thus forming a positive catalyst for the sentiment of the sector. In addition, we are about to enter the intensive disclosure period of the first quarterly report, and it is recommended to pay attention to banks with strong performance at the stock level: 1) management landing + stable and high growth of performance – Bank Of Ningbo Co.Ltd(002142) ; 2) High quality small and medium-sized banks that benefit from the steady growth of infrastructure construction, and whose performance growth is expected to be in the forefront of listed banks and have strong willingness to convert convertible bonds into shares: Chengdu, Nanjing, Bank Of Hangzhou Co.Ltd(600926) etc. 3) Banks with underestimated value and marginal improvement of performance: Changshu, Postal Savings Bank Of China Co.Ltd(601658) etc. 4) Benefiting from the relaxed expectation of real estate policy, steady growth, stable employment and effective policy, high-quality retail banks are expected to usher in opportunities for valuation repair: investment promotion, Ping An Bank Co.Ltd(000001) etc. Regular data tracking:
Equity market tracking: 1) trading volume: the average daily turnover of stocks this week was 0.91 trillion yuan, a decrease of 31.603 billion yuan compared with last week. 2) Liangrong: the balance was 1.64 trillion yuan, down 1.05% from last week. 3) Fund issuance: non monetary funds issued 4.652 billion shares this week, down 6.887 billion from last week. In April, a total of 22.277 billion shares were issued, a year-on-year decrease of 27.342 billion. Among them, 958 million were stock type, with a year-on-year decrease of 1.775 billion; The mixed type was 5.369 billion, a year-on-year decrease of 10.172 billion.
Interest rate market tracking: 1) interbank certificates of deposit: A. volume: according to wind data, the issuance scale of interbank certificates of deposit this week was 0.61 trillion yuan, an increase of 413.73 billion yuan month on week; Since the end of the month, the amount of inter-bank certificates of deposit has been 237.3 trillion yuan, a decrease of 3.5 trillion yuan compared with the current amount of inter-bank certificates of deposit issued by the end of the month; B. Price: the issuing rate of interbank certificates of deposit this week was 2.46%, down 0.5bps from last week; Since April, the issuing interest rate has been 2.48%, down 6bps from March. 2) Bill interest rate: this week, the 3-month discount rate of bank notes of large state-owned banks + joint-stock banks was 1.83%, down 5bps from last week; The average interest rate in April was 1.87%, down 12bps from March. The three-month bank note discount rate of urban commercial banks was 1.93%, down 3bps from last week, and the average interest rate in April was 1.97%, down 18bps from last month. 3) Yield of 10-year Treasury bonds: the average yield of 10-year Treasury bonds this week was 2.77%, down 1bps from last week. 4) Issuance scale of local government special bonds: 18.968 billion new special bonds were issued this week, an increase of 18.678 billion month on week. Since the beginning of the year, a total of 1.32 trillion bonds have been issued. The annual budget of local special bonds in 2022 is 3.65 trillion.
Risk tip: the risks of real estate enterprises erupt intensively, and the macro-economy goes down; The promotion of capital market reform policy is less than expected; The sales of guaranteed products of insurance companies were lower than expected.
