Core conclusion
Why should banks reduce costs: banks have limited room to make profits, and financial support for the real economy needs "cost reduction" support. The current round of epidemic counterattack has exceeded expectations. Enterprises in the real economy have difficulties in operation and need to be rescued urgently. Efforts to "stabilize growth" have continued to increase. Regulators stressed that financial institutions should improve their political position and reduce the comprehensive financing cost of the real economy. From the perspective of banks, the multiple reductions of LPR since 2020 have led to the continuous decline of the bank's asset side yield, and the space for banks to make profits to the real economy has been limited. Therefore, it is emphasized that banks need to "reduce the cost" before "making profits". The debt cost accounts for the highest proportion of bank costs, and then the premise of "making profits" is to reduce the bank's debt side cost.
How to reduce the cost of liabilities for banks: reduce the deposit reserve ratio, release low-cost funds, and the interest rate self-discipline mechanism guides banks to reduce deposit interest rates. In the context of the urgent demand for financial support for the real economy, on April 15, the central bank decided to reduce the deposit reserve ratio of financial institutions by 0.25 percentage points, and an additional 0.25 percentage points for urban commercial banks without inter provincial operation and agricultural commercial banks with deposit reserve ratio higher than 0.5%. RRR reduction can release a large number of low-cost deposits for banks to use, effectively reduce the average cost of the liability side, and has a more significant positive effect on banks with a high proportion of deposits. In addition, the self-discipline mechanism of market interest rate pricing encourages the floating upper limit of deposit interest rate of small and medium-sized banks to be lowered by about 10bp, and gives MPa assessment rewards. Considering that small and medium-sized banks are at a disadvantage compared with large banks in terms of their ability to solicit deposits and mainly rely on price competition, the measures to encourage the reduction of deposit interest rates send a strong signal of cost reduction. In the future, the "cost reduction" work of banks will still be the focus, and more measures conducive to the cost reduction at the liability end will be introduced one after another, so as to guide the effect of "cost reduction" at the liability end to the "profit transfer" at the asset end. From the perspective of comprehensive negative assets, it has a neutral impact on the bank's net interest margin.
The effectiveness of "cost reduction" of banks: the cost ratio of interest bearing liabilities decreased significantly. In 2021, regulators have made great efforts to reduce the cost of bank liabilities and released 2.2 trillion long-term low-cost funds through two RRR reductions; In June 2021, the pricing mechanism of deposit interest rate was reformed from "benchmark interest rate" × Change "multiple" to "benchmark interest rate + base point" to reduce the interest rate of long-term deposits. The cost of bank liabilities has been effectively reduced by taking multiple measures. In 2021, the cost ratio of interest bearing liabilities of most banks decreased year-on-year, with the most obvious decline in Bank Of Communications Co.Ltd(601328) (- 12bp), China Merchants Bank Co.Ltd(600036) (- 14bp), Ping An Bank Co.Ltd(000001) (- 11bp), China Zheshang Bank Co.Ltd(601916) (- 15bp) and Bank Of Nanjing Co.Ltd(601009) (- 18bp). In addition, whether it is to reduce the reserve requirement or reduce the deposit interest rate, banks with strong deposit capacity and good deposit base will benefit more, and their debt side advantages will be further strengthened.
Under the structural wide credit, it can be preferred to benefit from boutique banks. Under the environment of "steady growth", the policy continues to relax, reducing the reserve requirement + guiding banks to reduce deposit interest rates + encouraging banks to reduce provisions, taking more measures to reduce the cost of banks, which is conducive to the abundant capital of banks. Superimposing the solid fundamentals of banks, the marginal safety of the banking sector is higher. Under the undervalued value, the value of investment allocation is prominent. Structural credit is on the way, and banks focusing on inclusive small and micro enterprises, scientific and technological innovation and green economy will take the lead in benefiting. Therefore, we suggest to pay active attention to high-quality banks.
Risk warning: macroeconomic growth rate is down; The implementation of the policy is less than expected; The epidemic situation repeatedly exceeded expectations.
