Market review of the bank sector: this week, the bank index rose 0.8%, underperforming the Shanghai and Shenzhen 300 index by 1.4pct; Gains were led by China Merchants Bank (+ 7.6%). In late April, China Merchants Bank‘s share price fell sharply due to the impact of the event. We released a report in early May, firmly optimistic about the high-quality fundamentals of China Merchants Bank, suggesting the valuation repair opportunities brought by the oversold. With the announcement of the president’s appointment, China Merchants Bank‘s share price rebounded rapidly. The closing price of A-Shares on Friday rose 13.3% from the low on May 10, ranking the first among listed banks. In the past two weeks, northbound capital has increased its holdings of China Merchants Bank by 2.09 billion yuan.
In recent years, the reform and risk disposal of small and medium-sized banks have achieved results. On May 20, the CBRC held a briefing meeting to respond to the reform of small and medium-sized banks. The operation of small and medium-sized banks has further returned to the main business: A. at the end of 2021, the proportion of loans increased by 7.6pct to 55.1% compared with the end of 2017; b. The asset growth of urban commercial banks gradually returned to the industry average, and the proportion of loans increased to 51.3%. The intensity of non-performing loans disposal has increased, the number of high-risk institutions has continued to drop, and the risk has generally converged: A. small and medium-sized rural banks have disposed of non-performing loans of 2.6 trillion yuan since 2018. 627 high-risk rural small and medium-sized banks were disposed of through the introduction of qualified shareholders, absorption and merger, reorganization and integration, up to standard upgrading, etc; b. City Commercial Banks disposed of 1.8 trillion yuan of non-performing loans in 20172021. Newly established Sichuan bank, Shanxi Bank, Liaoshen bank and other risk absorbing and merging institutions. The central bank’s 2021q4 financial institution rating report shows that high-risk institutions have declined for six consecutive quarters, and are currently mainly distributed in rural financial institutions and urban commercial banks.
Under the package of policy arrangements, supervision will further promote the reform of small and medium-sized banks. At this stage, the stock of high-risk institutions shows the characteristics of regional concentration. The internal problem is the negative circular pressure brought by the further deepening of financial ecological differentiation, superimposed with factors such as poor corporate governance of financial institutions, the resonance between the slowdown of economic growth and the impact of the epidemic, industrial structure adjustment and so on. Prospects for the follow-up measures to promote the reform of chemical insurance: 1) make special bonds to supplement capital and repair the bank’s asset expansion and sustainable operation ability; 2) Promote market-oriented M & A, such as encouraging high-quality banks, insurance and qualified institutions to participate in the M & A of small and medium-sized rural banks, and promoting the absorption and merger of three urban commercial banks such as Luoyang by Zhongyuan bank; 3) Broaden the sources of funds for risk disposal, and steadily dispose of key high-risk institutions with “one bank, one policy” in the progressive order of “self rescue of institutions under disposal – market-oriented capital M & A and reorganization – local public resources – financial stability guarantee fund”; 4) Compact the responsibilities of all parties, let shareholders and creditors bear losses according to law, and strictly prevent moral hazard; Adhere to the principle that “supervision is the name of supervision”, and promote financial anti-corruption and disposal of financial risks in one.
Bank stock investment logic and suggestions. Since April, with the significant increase of the impact of the epidemic, the macroeconomic expectation of “wide credit” is not strong, which has dragged down the performance of the banking sector. The evolution of 2q epidemic will still be an important variable affecting the expectation of “wide credit” and the performance of bank stocks. However, we should also see that there is a strong demand for promoting “stable growth” at the policy level. With the gradual implementation of supporting policies, it will help stabilize and continue the performance of the banking sector. In terms of high-level policy arrangements, on April 29, the Politburo meeting released a clear signal of “steady growth”; On May 18, the national Standing Committee proposed that “all localities and departments should enhance their sense of urgency, make sure that new measures that are accurate can be used up, and make every effort in May to ensure that the economy operates within a reasonable range in the first half of the year and the whole year”. At the same time, with the recent warm wind blowing in the real estate market, the central bank and the China Banking and Insurance Regulatory Commission issued the notice on issues related to the adjustment of differentiated housing credit policies, which made it clear that the lower limit of the interest rate of commercial individual housing loans for the first set of housing was adjusted to not less than the quoted interest rate in the loan market for the corresponding period by 20 basis points, that is, the lower limit was 4.4%; Subsequently, the LPR quotation 5ylpr in May was significantly reduced by 15bp, further releasing the signal of stimulating demand and restoring sales. Stabilizing housing sales, promoting the recovery of mortgage loans and restoring the hematopoietic capacity of enterprises are not only the recommended policy for the steady and healthy development of the real estate industry, but also an important starting point for promoting bank credit. Under the expectation of further efforts of the “stable growth” policy, superimposed on the mitigation of the epidemic in Shanghai and the orderly resumption of work and production in the Yangtze River Delta, we are expected to see the marginal improvement of the credit data from May to June compared with April, and the “wide credit” is expected to be gradually repaired. Bank stock investment continues to propose to grasp three main lines: 1) China Merchants Bank Co.Ltd(600036) , with high operating fundamentals and suppressed stock price due to event impact; 2) Postal Savings Bank Of China Co.Ltd(601658) , with obvious advantages on the debt side; 3) Banks that deeply cultivate high-quality areas and have performance release demands, such as Hangzhou, Nanjing, Jiangsu, Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) .
Risk analysis: the economic growth rate is lower than expected; Real estate risk situation disturbance; Financial profit giving entities exceeded expectations
