Investment summary:
Talk every Monday: the impact of LPR reduction on the banking sector
On May 20, the people’s Bank of China authorized the national interbank lending center to announce that the quoted interest rate (LPR) of the loan market on May 20, 2022 was: the one-year LPR remained unchanged at 3.7%, and the five-year LPR was reduced to 4.45%, up from 4.6%.
The interest rate cut event is in line with market expectations, but the 5-year LPR is reduced by 15bps, which exceeds market expectations:
On the one hand, this interest rate cut is a further force of the “steady growth” policy. Since the beginning of the year, social finance credit data has continued to weaken. From the RMB loan data in April, residential housing loans decreased by 60.5 billion yuan, a year-on-year decrease of 402.2 billion yuan, and medium and long-term loans of enterprises increased by 265.2 billion yuan, a year-on-year decrease of 395.3 billion yuan. It reflects the insufficient effective credit demand. This interest rate cut will help to reduce the medium and long-term loan interest rate of enterprises and the mortgage interest rate of residents, so as to stimulate the medium and long-term loan demand of enterprises and the demand for housing mortgage loans, indicating the determination of regulators to stabilize the real estate market and economic growth.
On the other hand, the central bank has reserved some space for this interest rate cut after guiding the behavior of deposit interest rate. In April, the people’s Bank of China guided the interest rate self-regulation mechanism and established a market-oriented adjustment mechanism of deposit interest rate. The member banks of the self-regulation mechanism reasonably adjusted the level of deposit interest rate with reference 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. After the implementation of the mechanism, in the last week of April (from April 25 to May 1), the weighted average interest rate of new deposits in financial institutions across the country was 2.37%, down 10 basis points from the previous week.
For banks, the impact of LPR reduction mainly occurs in 2023, and large banks are more affected:
Considering the repricing of existing loans, the impact of this five-year LPR decline on banks is mainly concentrated in 2023. Considering that the five-year LPR has been reduced by 5bps in January and 20bps in total since this year, we conduct static calculation on the data at the end of 2021, and the impact of loan repricing on the net interest margin of listed banks in 2023 is about 4.8bps.
Large banks are relatively more affected. State owned banks and joint-stock banks with high proportion of mortgage loans and enterprise medium and long-term loans are relatively more affected, while regional banks have relatively small impact due to the relatively low proportion of mortgage loans and enterprise medium and long-term loans, such as Bank Of Ningbo Co.Ltd(002142) personal housing loans accounting for 4.33% and Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) personal housing loans accounting for 8.55%.
Investment strategy: Overall, the reduction of 5-year LPR puts pressure on the bank’s net interest margin. However, during the time period when the banking sector has achieved excess returns in the resumption of trading, the net interest margin is also in the downward cycle. Therefore, the main decisive factor for the banking sector to achieve excess returns is the market’s expectation of economic recovery. Generally, when the demand for medium and long-term loans recovers, it indicates that the pressure on bank loans is reduced, the asset quality is gradually bottomed, the operating environment of the banking sector is marginal improved, and the banking sector has excess returns. At present, the steady growth policy has been gradually introduced to stimulate the loan demand of enterprises and residents. We believe that the loan demand is in the process of bottoming out. In the follow-up, we need to pay attention to the changes of real estate sales and medium and long-term loans of enterprises.
Under the influence of the current epidemic disturbance and the weak real estate market, the overall loan side is under great pressure. It is suggested to focus on high-quality banks with stable operation, regional advantages and less affected by LPR reduction, such as Bank Of Ningbo Co.Ltd(002142) , Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) , Bank Of Jiangsu Co.Ltd(600919) , Bank Of Nanjing Co.Ltd(601009) , etc.
Important announcement: on May 19, China Merchants Bank Co.Ltd(600036) announced that the board of directors agreed to appoint Wang Liang as president of China Merchants Bank Co.Ltd(600036) for a term of office from the date when the qualification of president was approved by Bank Of China Limited(601988) Insurance Regulatory Commission to the date of expiration of the 11th board of directors.
Risk warning: policy risk; The risk of macroeconomic recovery falling short of expectations; Covid-19 is at risk of continued deterioration.
