Event: the latest LPR quotation was released in May, the one-year period was flat, and the five-year period was reduced by 15bps to 4.45%
The interest rate cut has made efforts to “stabilize growth”, which is conducive to improving the credit environment and supporting bank valuation. Since the beginning of the year, the real estate market has been cold (housing loans decreased by 60.5 billion yuan in April), and the social finance credit data has also continued to weaken. In this case, the “interest rate cut” to reduce the purchase cost of residents is expected to boost confidence. If the housing market can pick up in the future, it will benefit the relevant credit demand and asset quality of banks and support the valuation.
The debt side policy forms a certain hedge, and the interest margin of small and medium-sized banks is relatively less affected. 1) Under the most pessimistic assumption (assuming that the new loan interest rate decreases by 35bps and the stock conversion decreases by 15bps), without considering other factors for hedging, it is estimated that the negative impact of the interest rate reduction on the interest margin is about 7bps and the negative impact on the revenue and profit is 2.4pc and 5.5pc.
Due to the relatively small proportion of mortgage loans and medium and long-term loans, the impact of small and medium-sized banks is relatively small. For example, the proportion of mortgage loans of Bank Of Ningbo Co.Ltd(002142) is only 4.33%, and the proportion of loans with a term of more than 5 years is only 15%. It is estimated that the impact of the five-year LPR reduction on the interest rate spread is only 3bps, and the negative impact on listed banks is the smallest.
2) at the same time of interest rate reduction, the recent regulation has also been continuously guiding the decline of liability side costs, such as the market-oriented reform of deposit self-discipline mechanism since the beginning of the year and encouraging the “interest rate reduction” of small and medium-sized bank deposits. On the basis of this interest rate cut, comprehensive consideration: a. the one-year LPR before this interest rate cut has decreased by 15bps since December last year, and the five-year LPR has decreased by 5bps; B. A series of supporting policies on the liability side and two RRR reductions since the beginning of the year;
It is estimated that the negative impact on the industry interest margin is about 5bp, and the negative impact on the revenue and profit is 1.9pc and 4.4pc when other factors remain unchanged. (however, it should be noted that the competition for deposits is relatively fierce, and the actual decline may not be so much.) In terms of bank types, small and medium-sized banks with low proportion of medium and long-term loans are relatively less affected. For example, a, Bank Of Nanjing Co.Ltd(601009) : loans with a term of more than 5 years account for only 17%, deposits with a term of 1-5 years account for 32%, and the estimated interest margin is basically the same; B. Wuxi Rural Commercial Bank Co.Ltd(600908) : loans with a maturity of more than 5 years account for only 17%, deposits with a maturity of 1-5 years account for 28%, and the calculated interest margin is basically the same; C. Bank Of Ningbo Co.Ltd(002142) : it is estimated that the impact of the LPR reduction on the interest rate spread is only 3bps, and the listed banks are the smallest. After considering the comprehensive factors since the beginning of the year, the interest rate spread has decreased by 3bps, which is lower than that of the listed banks as a whole.
Investment suggestion: interest rate cut and real estate relaxation are also important driving points of the current “steady growth” combination, which is expected to continue to be implemented in the future. The current valuation of the banking sector (only 0.54 times Pb) has reflected pessimistic expectations on the economy and the decline of interest rate spread. The impact of the subsequent epidemic has gradually subsided and the steady growth policy has been implemented and reflected the effect, which is conducive to the expectation of economic stabilization in the future and the Fundamentals of banks. Extremely undervalued value + low position level (Q1 is only 4.02%, in the position of 1 / 3 in recent 10 years) + the performance of high-quality banks has increased steadily, and the banking sector has great room for repair.
Recommendations for individual stocks: 1) elastic small and medium-sized banks with excellent fundamentals or benefiting from steady growth and good performance: Ningbo, Chengdu, Nanjing, Hangzhou, Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) ; 2) Large banks with undervalued value, steady growth and strong safety margin: Postal Savings Bank Of China Co.Ltd(601658) , Industrial And Commercial Bank Of China Limited(601398) . 3) Post cycle varieties benefiting from the relaxation of real estate policies and the recovery of consumption after the epidemic is stable: Ping An Bank Co.Ltd(000001) , China Merchants Bank Co.Ltd(600036) .
Attachment: calculation process
Scenario 1: under the most pessimistic assumption, without considering other factors, the negative impact of hedging calculation is about 7bps
[hypothesis] assuming that the stock 5-year LPR is reduced by 15bps, the incremental 5-year loan interest rate is reduced by 35bps (considering the relatively weak mortgage market), and other factors remain unchanged;
[industry] it is estimated that the negative impact on loan interest rate is 11bps, the negative impact on interest margin is 7bps, and the negative impact on revenue is 2.4pc and profit is 5.5pc.
[branch banks] small and medium-sized banks are less affected by the 5-year LPR reduction due to the relatively small proportion of mortgage loans and low proportion of medium and long-term loans. For example, the proportion of mortgage loans of Bank Of Ningbo Co.Ltd(002142) is only 4.33%, and the proportion of loans with a term of more than 5 years is only 15%. It is estimated that the impact of the five-year LPR reduction on the interest rate spread is only 3bps, and the negative impact on listed banks is the smallest.
Scenario 2: the comprehensive impact on the interest margin is about 5bps considering the hedging of the reduction of reserve requirement since the beginning of the year and the reduction of the cost of guiding liabilities
[assumptions]
1) on the basis of this interest rate reduction, the loan side comprehensively considers the impact of the previous 1-year and 5-year LPR reduction of 15bps and 5bps, and assumes that 50% of the 1-5-year loans will be repriced;
2) deposit side: a. the reform of deposit self-discipline mechanism. According to the previous data of the central bank, it is assumed that the deposit interest rates of 1-year, 1-5-year and more than 5 years will decrease by 4bps, 34bps and 45bps respectively after the reform, and it is assumed that the repricing will be completed in 2 years; B. Considering that the regulation encourages the upper limit of deposit interest rate of small and medium-sized banks to be lowered by 10bps, it is assumed that the effect can be implemented by half in the end, that is, the deposit (including demand) interest rate within 3 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 reduction of 10bps is low), and the deposit interest rate of 3 months and above will decrease by 5bps; It is estimated that the deposit cost rate will decrease by 7bps and support the interest margin of 5bps.
3) RRR reduction: two RRR reductions (0.75pc in general, 1pc in non inter provincial urban commercial banks and rural commercial banks), and the supporting interest margin is calculated to be 1bp.
[industry impact]
1) the comprehensive loan interest rate will drop by 19bps, which will negatively affect the interest margin by 12bps;
2) the comprehensive deposit interest rate will drop by 7bps, positively supporting the interest margin by 5bps;
3) the reduction of reserve requirement positively supports the comprehensive calculation of interest rate spread of 1bp, which has a negative impact on the interest rate spread of the whole industry of 5bps and a negative impact on revenue and profit of 2pc and 4.4pc.
[from the perspective of sub banks] small and medium-sized banks are less affected by the reduction of 5-year LPR due to the relatively small proportion of mortgage loans and low proportion of medium and long-term loans. At the same time, considering the support of the liability side, the interest margin of many small and medium-sized banks can be improved, such as:
Bank Of Nanjing Co.Ltd(601009) : loans with a term of more than 5 years account for only 17%, deposits with a term of 1-5 years account for 32%, and the calculated interest margin is basically the same;
Wuxi Rural Commercial Bank Co.Ltd(600908) : loans with a maturity of more than 5 years account for only 17%, deposits with a maturity of 1-5 years account for 28%, and the calculated interest margin is basically the same;
Bank Of Ningbo Co.Ltd(002142) : it is estimated that the impact of the LPR reduction on the interest rate spread is only 3bps, and the listed banks are the smallest. After considering the comprehensive factors since the beginning of the year, the interest rate spread has decreased by 3bps, which is lower than that of the listed banks as a whole.
Risk tip: macroeconomic downturn, real estate risk outbreak, credit demand is less than expected.
