Event: on May 20, the people’s Bank of China authorized the national interbank lending center to announce that the one-year LPR was 3.7%, which remained unchanged; The LPR over 5 years was 4.45%, down 15 BP. Our comments are as follows:
The policy aims to stabilize the real estate market and broaden credit. Although the real estate policies of most cities have been significantly relaxed since the beginning of the year, the pressure faced by the real estate industry is still large, and the sales of commercial houses have not improved, resulting in the weak demand for housing mortgage loans since the beginning of the year. The five-year LPR reduction: ① it has strong signal significance, and the loosening of real estate policies began to appear at the national level, indicating the determination of regulators to stabilize the real estate market and stabilize market expectations; ② For new home buyers, people with houses in stock and other customers with medium and long-term loans, the interest burden will be reduced to a certain extent and the pressure on the real economy will be alleviated; ③ Show the determination to stabilize growth, break the concerns of market subjects about credit contraction, and stimulate the improvement of real estate sales and medium and long-term financing demand.
Downward pressure on bank asset side interest rates increased. The five-year LPR reduction mainly affects retail medium and long-term loans (mainly mortgages) and corporate medium and long-term loans. This year, the interest rate of new credit will be under downward pressure, and next year, a large number of medium and long-term stock loans will be involved in repricing, which will drag down the asset side yield. Static calculation (without considering the changes of other factors), the impact of LPR reduction on bank fundamentals is reflected in the following aspects:
① if only the 15bp reduction of the five-year LPR on May 20 is considered, it will drag down the net interest margin of listed banks by 0.7bp in 2022 and the profit growth rate of listed banks before provision by 0.41pc in 2022; After the repricing of stock loans at the beginning of next year, the net interest margin in 2023 will be dragged down by 4.69bp, and the profit growth before provision in 2023 will be dragged down by 2.84pc.
② if considering the year to date, the one-year LPR has been reduced by 10bp and the five-year LPR has been reduced by 20bp, it will drag down the net interest margin of listed banks by 1.3bp and the growth rate of profit before provision by 0.77pc in 2022; After the repricing of stock loans at the beginning of next year, it will drag down the net interest margin of 6.56bp in 2023 and the growth rate of profit before provision in 2023 by 3.98pc.
③ the impact on different types of banks varies greatly. Banks with high proportion of mortgage loans and medium and long-term corporate loans have a greater impact on the interest margin and profit before provision, with state-owned banks joint-stock banks urban commercial banks rural commercial banks.
The cost of bank liabilities is still expected to have downward space. Before the five-year LPR reduction, the people’s Bank of China did not adjust the MLF or Omo interest rate, mainly because in the early stage, by reducing the reserve requirement and guiding the bank to reduce the deposit interest rate for more than one year, the cost of bank liabilities was improved, which drove the financing cost of the real economy down.
In April this year, the market-oriented adjustment mechanism of deposit interest rate was established. In the future, the bank deposit interest rate should refer to the bond market interest rate represented by the yield of 10-year Treasury bonds and the loan market interest rate represented by 1-year LPR. Under the background of the overall decline of the current market interest rate, it is conducive to banks to stabilize the debt cost and appropriately alleviate the pressure of the decline of net interest margin.
Whether the LPR will be adjusted in the future depends on whether the financing demand and real estate sales can be improved.
① we use the difference between individual housing loan interest rate and general loan interest rate to represent the interest rate difference between mortgage loan and enterprise loan, and use the difference between individual housing loan interest rate and 30-year treasury bond interest rate to represent the term interest rate difference.
Since 2017, the interest rate difference between mortgage loans and corporate loans has continued to rise. Especially since 2020, when the term interest rate difference has fallen, the interest rate difference between mortgage loans and corporate loans has reached a record high, which shows that under the environment of downward corporate financing costs, residents’ financing costs have increased “in disguise”. Now, under the influence of the epidemic, the residents’ departments have begun to shrink their tables, and the need to reduce their financing costs has increased significantly. It is expected that there is still a large downward space for mortgage interest rates.
② however, considering the establishment of the long-term mechanism of “housing without speculation”, the decision-making level also needs to consider the pressure brought by the short-term significant relaxation of mortgage interest rate on the rise of house price and land price. Therefore, we expect that the mortgage interest rate adjustment at the national level is still a gradual process, and the regulators will make a discretionary choice in combination with the recovery of real estate sales and financing demand in the future. The decline of five-year LPR will not be achieved overnight.
For bank stocks, the implementation of the current steady growth policy is the leading logic. There is no doubt that the five-year LPR reduction has put pressure on the fundamentals of banks, and the pressure in 2023 is much greater than this year. However, in addition to the fundamentals, the determinants of bank stocks are also dominated by macroeconomic expectations, macroeconomic policy tightness and valuation. In particular, the macroeconomic forecast is a more core contradiction. For example, the decline of LPR in the first half of 2020 has brought great downward pressure on the net interest margin in 2021, However, 2020q4 ~ 2021q1 bank stocks have good absolute and relative returns, and the core logic is the improvement of economic expectations.
Moreover, in the past few years, the allocation logic of the banking sector has changed from growth to defense, and from Pro cyclical logic to counter cyclical regulation. When the capital market fluctuates greatly, based on the hedging logic, bank stocks will also be favored by investors.
In the current environment, the intention of regulators to stabilize credit and expectations has been significantly enhanced. Steady growth is still the main line of the market, and the allocation of bank stocks is a very high choice.
Key recommended targets: Bank Of Ningbo Co.Ltd(002142) , Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) , China Merchants Bank Co.Ltd(600036) , Ping An Bank Co.Ltd(000001) , Postal Savings Bank Of China Co.Ltd(601658) , Industrial Bank Co.Ltd(601166) .
Risk tip: the steady growth policy is less than expected, and the risk exposure of the real estate industry is accelerated
