Key investment points
The lower limit of the first house loan interest rate cut & the impact of the 5-year LPR cut on banks and individuals: 1. Comprehensively consider the 10bp lower limit of deposit pricing + 20bp lower limit of the 5-year LPR + 20bp lower limit of the first house loan pricing, which will drag down the interest margin of Listed Banks by 1.4bp and pre tax profit by 1.3% in 2022. The impact will be greater in 2023: the repricing proportion of loan stock is high, and the mitigation effect of deposit cost is weakened; The interest margin dragged down 2.6bp and the profit before tax was 2.4%. From the perspective of structure, the impact on state-owned banks is the most obvious, and the comprehensive impact on rural commercial banks is the least. The range of impact is state-owned banks joint-stock banks urban commercial banks rural commercial banks. 2. The optimal interest rate of personal first home loan was reduced to 4.25%, and the optimal interest rate of second home loan was reduced to 5.05%. Under the assumption of 30-year repayment cycle, the 5-year LPR will be reduced by 15bp + the lower limit of commercial loan interest rate for the first house will be reduced by 20bp, and the impact on the repayment amount will be 2.3%. (for details, please refer to our special report “calculation ｜ lower limit of bank’s first house loan pricing: policy intention and method” and “5-year LPR reduction: acceleration of stable economic policy; static calculation of bank indicators”)
China Merchants Bank Co.Ltd(600036) the new president is settled: 1) the fundamentals of CMB remain stable, and its unique “moat of business model” has been cast in the retail and wealth management track, and its competitiveness to the public is also continuously improving. Wealth management takes the lead in all aspects and will probably become the top enterprise; Retail business can maintain a leading position for a long time; Corporate competitiveness continues to improve, driving wealth and retail business. 2) Behind CMB’s ability to continuously build its unique value lies in its good corporate governance mechanism. CMB has implemented the “president responsibility system under the leadership of the board of directors” for a long time. The board of directors maintained the stability and continuity of China Merchants Bank Co.Ltd(600036) with a highly responsible attitude towards China Merchants Bank Co.Ltd(600036) and made prudent choices and decisions for the new president. The major shareholder of China Merchants Group is one of the most market-oriented and international groups. In the past 40 years, it has selected three excellent presidents for China Merchants Bank, and designed a market-oriented corporate governance structure with president responsibility system and appropriate supervision for China Merchants Bank. The benign interaction between “leadership of the board of directors” and “president responsibility system” makes the management of China Merchants Bank always have the autonomy of daily operation and fully maintain the vitality of marketization; It also makes the long-term strategy stable and continuous, and there has been no obvious deviation and shaking in the past 40 years. (see China Merchants Bank Co.Ltd(600036) : new management settled, outstanding value continued in our external report for details)
Volume: 1. Asset side: in the third week of May, the net financing of local bonds was 212.8 billion, with a year-on-year increase of 68.2 billion; The net financing of treasury bonds was 116.6 billion, with a year-on-year increase of 20.8 billion. This week, local bonds and government bonds continued to increase year-on-year, of which the scale of local bonds increased year-on-year and expanded month on month compared with last week. Under the guidance of the current proactive fiscal policy, in the first three weeks of May, the net financing of local bonds totaled 474.7 billion and the net financing of national bonds totaled 359.2 billion. The high-level stated that “all localities and departments should enhance their sense of urgency, see that the new measures that are accurate can be exhausted, and can be released in May”. It is expected that the local debt will continue to increase more next week. 2. Liability side: in the third week of May, the inter-bank certificates of deposit of joint-stock banks and rural commercial banks were net financing, and the inter-bank certificates of deposit of large banks and urban commercial banks were net repayment. In terms of strength, the financing strength of four types of interbank certificates of deposit is still significantly weaker than that in the same period last year. The net financing of large banks / joint-stock banks / urban commercial banks / rural commercial banks this week was – 94 / 146 / – 19 / 6.4 billion respectively, with a year-on-year increase of – 704 / – 338 / – 323 / – 34.1 billion respectively. This week, the total net financing volume of interbank certificates of deposit decreased by 172.4 billion year-on-year, and the scale increased by 63.3 billion month on month compared with last week.
Price: the net return of reverse repo this week was 10 billion, and the five-year LPR was reduced by 15bp. This week is the third week of May. The open market reverse repo liquidity has invested 50 billion and matured 60 billion, the net return of funds is 10 billion, and the investment interest rate remains stable. This week, MLF will normally expire and renew 100 billion. On Friday, the one-year LPR remained unchanged at 3.70%, and the five-year LPR reported 4.45%, up from 4.60% last time, down 15bp, which positively responded to the premier’s statement of “doing everything possible” on Wednesday and accelerated the implementation of the monetary policy of stabilizing the economy.
Credit risk: in the third week of May, the number of credit debt defaults was 3, involving a private enterprise and a foreign-funded enterprise, with a total scale of 1.995 billion yuan. There is one default enterprise in total, R & F real estate, with a default scale of 995 million yuan this week. This week, the default amount of credit bonds in China’s open market remained stable compared with last week. Since the outbreak of the macro economy, the sales volume of real estate has declined significantly due to the recent decline of real estate enterprises and the prevention and control of private real estate. With the continuous deregulation of the current real estate policy, real estate sales are expected to pick up to a certain extent. The China Banking and Insurance Regulatory Commission also issued a document saying that “we will support all localities to improve real estate policies based on local conditions, support rigid and improved housing demand, and promote the steady and healthy development of the real estate market”. At present, the default risk of private real estate enterprises is still in the state of fluctuation convergence.
Sector investment suggestions: optimistic about the banking sector; Choose a strong target for growth. The decline in market risk appetite is conducive to the undervalued banking sector, and steady growth is expected to continue to drive the banking sector. In stock selection, banks with strong assets and solid asset quality should be selected (demand is declining; the economy is under pressure). We mainly recommend the urban rural commercial banks with good industrial and regional layout. Considering the valuation factors, we suggest to pay attention to Jiangsu, Nanjing and Suzhou in the near future.
Risk warning event: the economic downturn exceeded expectations. The impact of the epidemic exceeded expectations.
