Matters:
On April 15, the central bank announced that in order to support the development of the real economy and promote the steady decline of comprehensive financing costs, it decided to reduce the deposit reserve ratio of financial institutions by 0.25 percentage points on April 25, 2022.
Ping An View:
The overall RRR reduction came as scheduled, slightly lower than expected. We believe that this comprehensive RRR reduction is the landing of the statement of “timely use of RRR and other monetary policy tools” at the national Standing Committee on April 13, and the time point of RRR reduction is in line with expectations. However, in terms of the range of RRR reduction, considering that the RRR reduction twice in the previous 21 years was 50bp, while this time it was 25bp (only 50bp for a small number of qualified urban and rural commercial banks), which was slightly lower than the market expectation, we judged that it was mainly related to the relatively loose overall financial market. We believe that the significance of the central bank’s RRR reduction signal is greater than reality, which aims to further convey the determination to reduce the real financing cost. Superimposed on the recent media reports on the self-discipline mechanism of market interest rate pricing to encourage the floating upper limit of deposits of small and medium-sized banks to be reduced by 10bp, we can see that the regulators are not reducing their efforts to better support the real economy by reducing the capital cost of banks. Looking forward to 2022, the downward pressure on China’s economy still exists, and the uncertainty of the epidemic situation is rising. We judge that the policy will continue to make steady growth, and banks are expected to usher in a relatively loose and mild regulatory environment.
We will continue to maintain reasonable and abundant liquidity, and the monetary policy is expected to be stable and loose in 22 years. According to the statement of the relevant person in charge of the central bank in answering reporters’ questions, it is expected to release about 530 billion yuan of long-term funds and reduce the capital cost of financial institutions by about 6.5 billion yuan per year. In this RRR reduction, the central bank made it clear that it “will continue to implement a prudent monetary policy”. Combined with the first quarter financial data conference on April 14, the central bank said that in the next step, it will continue to “flexibly use a variety of monetary policy tools, strive to serve the real economy”, “maintain reasonable and sufficient liquidity and enhance the stability of total credit growth”. At present, there are frequent epidemics, intensified changes in the situation at home and abroad, and the downward pressure on the economy remains, We expect that the monetary policy will remain stable and loose in 2022, and the total liquidity is expected to remain abundant.
Promote the decline of capital cost, and the static calculation is expected to increase the interest margin of listed banks by 0.3bp. After the overall RRR reduction, the deposit reserve ratio of large banks and joint-stock banks will be reduced to 9.75% / 7.75% respectively, and that of urban rural commercial banks will be reduced to 6.0% – 8.0%. From the perspective of the impact on financial institutions, we estimate that the comprehensive RRR reduction is expected to increase the net interest margin of listed banks by 0.3bp, thicken the profit growth rate by 0.3 percentage points, and moderately benefit the bank’s profit statement. From the individual point of view, rural commercial banks benefit more.
Investment suggestion: Policy correction is expected to improve, and continue to be optimistic about valuation repair. The RRR reduction is basically in line with market expectations. We expect that monetary policy will remain stable and loose under the downward pressure of the economy, and banks are expected to usher in a relatively loose and mild policy regulatory environment. Looking forward to the second quarter of 2022, with the force of steady growth policy and the correction of real estate policy, the industry will still be in the channel of negative expectation improvement. At present, the static valuation level of the sector is only 0.64x, which is still at an absolute low in history, and the margin of safety is sufficient. We are still optimistic about the valuation repair opportunities of the banking sector. Recommendations for individual stocks: 1) high quality regional banks represented by Bank Of Chengdu Co.Ltd(601838) with obvious improvement in fundamentals and margin and better growth than peers; 2) The bank, represented by China Merchants Bank Co.Ltd(600036) , Bank Of Ningbo Co.Ltd(002142) , Postal Savings Bank Of China Co.Ltd(601658) , is a bank that takes into account both asset quality performance and wealth management ability.
Risk tips: 1) macroeconomic downturn leads to higher than expected pressure on asset quality of the industry. 2) The decline in interest rates led to a narrower than expected industry interest margin. 3) The increase of cash flow pressure of real estate enterprises leads to the rise of credit risk.
