Event: on May 20, 2022, the latest loan market quotation rate (LPR) was announced, and the one-year LPR was reported at 3.7%, which was the same as that of the previous period; Varieties with a maturity of more than 5 years reported 4.45%, a decrease of 15bp compared with the previous period.
Why is it so low?
The key to the growth of social security and financing lies in loans, and the key to loans lies in the medium and long term. For the time being, let’s not talk about the quotation strategy of the quotation bank. Just say, when the current economic situation occurs, what should the benchmark interest rate of deposits and loans be? The growth rate of medium and long-term loans has decreased for 10 consecutive months, from 16.2% in June 21 to 10.7% in April 22, and the decline has increased significantly in recent months. At present, it is lower than the total loan growth rate of 10.9%. Medium and long-term loans account for 66% of the total loans, and their stalling decline will drag down the growth rate of total loans, and then drag down the growth rate of social finance.
The growth of long-term and short-term loans is unbalanced, and the two LPR spreads need to be narrowed. Since the beginning of the year, the growth trend of short-term loans and medium and long-term loans is completely opposite, which is related to the first reduction of one-year LPR at the beginning of the year. Looking back on history, the difference between the two benchmark interest rates has also reached a high level since the reform.
What is the impact on banks?
The LPR adjustment will affect the loans newly issued and due for renewal this year, as well as the loans repriced in the next year, covering 2022 and 23h1. The amplitude and rhythm of “2020 interest rate cut” and “2022 interest rate cut” are similar, which can be used as a reference. From December of 19 to April of 20, the LPR in 1-year period was reduced by 35bp and that in 5-year period was reduced by 20bp; Accumulated from December 21 to May 21, 15bp was reduced in one-year period and 20bp was reduced in five-year period.
The main differences between the two rounds of interest rate cuts are as follows: 1) in the “2020 interest rate cut”, the range of one-year LPR is greater, which has a greater impact on the return on assets of the current year; 2) In the “2020 interest rate cut”, there are structural deposit pressure reduction actions, and the inter-bank debt interest rate has a greater downward range, and the downward range of debt cost in this round may be less than that.
Weighted average forecast of listed banks. In the “2020 interest rate reduction”, the year-on-year and 21h1 year-on-year rates of return on interest bearing assets were – 22bp and – 13bp; Cost ratio of interest bearing liabilities – 19bp, – 4bp; Net interest margin – 4bp, – 8bp. It can be inferred that in the “interest rate reduction in 2022”, the year-on-year and 23h1 in 2022 may be realized compared with the previous year: the rate of return on interest bearing assets is – 15bp and – 13bp; Cost ratio of interest bearing liabilities – 11bp, – 6BP; Net interest margin – 4bp, – 7bp; Converted to 22 years of revenue growth, or drag 1.4pct. Banks with high proportion of medium and long-term loans may have a greater impact.
Investment advice: steady growth and strengthen efforts to reverse pessimistic expectations
The 5-year LPR interest rate cut exceeds market expectations, or effectively supports the growth rate of medium and long-term loans, mitigates real estate credit risk, enhances economic confidence, and high-quality joint-stock banks whose valuations are suppressed by real estate may benefit more. The bank valuation repair market can be expected, and two main lines continue to be recommended: high-quality stock banks look at Industrial Bank Co.Ltd(601166) , China Merchants Bank Co.Ltd(600036) , Ping An Bank Co.Ltd(000001) , high expansion city farmers and businessmen look at Bank Of Chengdu Co.Ltd(601838) , Bank Of Hangzhou Co.Ltd(600926) , Bank Of Nanjing Co.Ltd(601009) , Bank Of Ningbo Co.Ltd(002142) .
Risk tip: the steady growth policy is not as expected; Deterioration of asset quality; The impact of the epidemic has put pressure on the economy.
