Matters: in order to support the development of the real economy and promote the steady decline of comprehensive financing costs, the central bank decided to reduce the deposit reserve ratio of financial institutions by 0.25 percentage points on April 25 (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 the reduction, the weighted average deposit reserve ratio of financial institutions was 8.1%.
The implementation of RRR reduction is in line with expectations, and the broad monetary policy is expected to continue in the future. The RRR reduction implemented the requirements of “timely use of RRR reduction and other monetary policy tools to promote banks to enhance their credit lending capacity” put forward by Premier Li Keqiang at the national standing committee meeting on April 13. Generally speaking, although the range of the RRR reduction is lower than the market expectation, we believe that the significance of the steady growth signal transmitted by the RRR reduction is more noteworthy and conducive to stabilizing the market expectation. From the PMI and financial statistics in March, there is still great downward pressure on China’s economy. Looking forward to the second quarter, combined with the regulation that “monetary policy should respond actively” has been mentioned for many times, we expect that under the pressure of steady growth, more loose monetary policies are expected to be implemented in the near future to ensure reasonable and sufficient liquidity and guide financial institutions to increase their support for real enterprises.
Comprehensively reduce the reserve requirement, reduce the burden on banks, and guide the industry to better support entities. We believe that the intention of this comprehensive RRR reduction is very clear, that is, to help banks reduce capital costs, so as to promote the reduction of social comprehensive financing costs. In addition, the capital space released by the RRR reduction can support the expansion of loan lending and enhance the support of banks to the real economy, especially industries and small, medium and micro enterprises seriously affected by the epidemic. It is worth noting that Caixin reported on the same day that recently, the market interest rate pricing self-discipline mechanism held a meeting to encourage some small and medium-sized banks to reduce the floating upper limit of deposit interest rate by about 10bps. It is also from the bank’s liability side, hoping to drive banks to reduce asset side pricing by reducing the cost of bank liabilities, stimulate the financing demand of real enterprises and “escort” credit.
Lowering the reserve requirement will release capital space and mildly benefit the fundamentals of banks. After the “comprehensive + directional” RRR reduction, the deposit reserve ratio of large banks and joint-stock banks will be reduced to 9.75% / 7.75% respectively, while that of urban rural commercial banks will be reduced to 5.50% – 8.75%. From the impact of the RRR reduction, we estimate that the “comprehensive + directional” RRR reduction is expected to release the liquidity of listed banks totaling 353.2 billion yuan, which is expected to boost the 22-year net interest margin performance of listed banks by 0.4bps and thicken the 22-year net profit attributable to the parent of listed banks by 0.4pct. In terms of classification, since the comprehensive RRR reduction has taken additional targeted RRR reduction for urban commercial banks without inter provincial operation and rural commercial banks with deposit reserve ratio higher than 5%, the overall benefit of rural commercial banks is more obvious. It is expected to increase the 22-year net interest margin and return to parent net profit of listed rural commercial banks by 0.8bps/1.0pct respectively.
Investment proposal and investment object
Combined with the RRR reduction and recent regulatory statements, the goal of stable growth of the policy is clear and firm. It can be predicted that under the background of repeated outbreaks and the increasing complexity and uncertainty of China’s external environment, various stable growth policies are expected to continue to make efforts in the future, help stabilize and improve economic expectations, take care of the bank’s business environment and provide support for the bank’s fundamentals. Recently, the trend of bank stocks has been strong, but the overall valuation level is still at an all-time low. As of April 15, the static Pb valuation of the sector was only 0.64x. Looking forward to the second quarter, we are still optimistic about the repair opportunities of the sector valuation brought by the “correction” of overly pessimistic market expectations, and continue to maintain the “optimistic” rating of the industry.
In terms of individual stocks, it is suggested to pay attention to: 1) value targets with excellent historical profitability and leading asset quality represented by China Merchants Bank Co.Ltd(600036) ( China Merchants Bank Co.Ltd(600036) , Unrated) and Bank Of Ningbo Co.Ltd(002142) ( Bank Of Ningbo Co.Ltd(002142) , Unrated); 2) Undervalued targets represented by Bank Of Communications Co.Ltd(601328) ( Bank Of Communications Co.Ltd(601328) , Unrated), Postal Savings Bank Of China Co.Ltd(601658) ( Postal Savings Bank Of China Co.Ltd(601658) , buy), Industrial Bank Co.Ltd(601166) ( Industrial Bank Co.Ltd(601166) , Unrated); 3) Urban rural commercial banks with strong regional economic advantages represented by Shanghai Rural Commercial Bank Co.Ltd(601825) ( Shanghai Rural Commercial Bank Co.Ltd(601825) , not rated), Bank Of Chengdu Co.Ltd(601838) ( Bank Of Chengdu Co.Ltd(601838) , not rated), Bank Of Nanjing Co.Ltd(601009) ( Bank Of Nanjing Co.Ltd(601009) , not rated). Risk statement
The economic downturn exceeded expectations; The liquidity risk of real estate enterprises continues to spread; The strength of financial supervision increased more than expected; Changes in assumptions affect the calculation results.
