On May 15, the people’s Bank of China and the China Banking and Insurance Regulatory Commission issued the notice on issues related to the adjustment of differentiated housing credit policies. The notice pointed out that for resident families who buy ordinary self owned houses with loans, the lower limit of the interest rate of commercial individual housing loans for the first set of houses shall be adjusted to not less than the market quotation interest rate of loans for the corresponding period minus 20 basis points, and the lower limit of commercial individual housing loan interest rate policy for the second set of houses shall be implemented in accordance with the current provisions. After adjustment, the lower limit of commercial individual housing loan interest rate for the first set of housing decreased by 20bp compared with the original policy, and the lower limit of commercial individual housing loan interest rate for the second set of housing remained at the level of no less than LPR + 60BP for more than five years.
The people’s Bank of China authorizes the national interbank lending center to announce that the quoted interest rate (LPR) of the loan market on May 20, 2022 is: 1-year LPR is 3.7%, and more than 5-year LPR is 4.45%. This time, the LPR in one-year period remained unchanged, and the LPR in more than five-year period decreased by 15bp. Here are our detailed comments.
A new combination of interest rate cuts appeared, and the focus of interest rate cuts fell on housing loans. Since the reform of LPR formation mechanism in 2019, in most cases, LPR follows the decline of MLF interest rate, and the decline of MLF interest rate will be accompanied by the decline of one-year LPR. Previously, the focus of interest rate reduction was on real enterprises, while the effect of housing loan interest rate reduction was not obvious. There were cases where MLF interest rate and LPR over 5 years remained unchanged while LPR over 1 year decreased slightly, and there were cases where MLF interest rate and LPR over 5 years decreased at the same rate and LPR over 5 years decreased at a discount. Different from the previous interest rate cut focusing on real enterprises, this interest rate cut is presented in a new combination: MLF interest rate remains unchanged, 1-year LPR remains unchanged, and LPR over 5 years decreases by 15bp, which can be regarded as a targeted interest rate cut for housing loans. The same as the trigger point for the adjustment of the lower limit of the first housing loan interest rate, the trigger point of this interest rate cut is still that the social finance was significantly lower than expected in April and the housing sales continued to decline significantly. The rate cut exceeded our expectations, reflecting the urgency of regulators to maintain the stable development of the real estate market when the effect of the early deregulation of multi place purchase restriction policy on the improvement of the real estate market is not obvious.
The scissors difference between the weighted average interest rate of housing loans and general loans is at a high level in recent years, leaving some room for follow-up policies. The adjustment of housing loan interest rate policy and the decline of LPR over 5 years have pushed the stability maintenance of the real estate market from local independent and differentiated stability maintenance to local and central stability maintenance. Under the difficult situation of the impact of the epidemic and the downturn of the real economy, housing consumption is still significantly restrained by the weakening of residents’ income expectations. It is not ruled out that the regulators may further adjust the housing loan interest rate policy before the policy effect reaches the desired level. At present, the scissors difference between one-year LPR and more than five-year LPR is still at a high level since the LPR reform in 2019. In addition, from the perspective of the weighted average interest rate of newly issued loans, the scissors difference between the weighted average interest rate of housing loans and the weighted average interest rate of general loans at the end of March is also at a historical high (the former is 51bp higher than the latter, and the former is lower than the latter before 2020), which leaves some space for follow-up policies.
The net interest margin of banks is negatively affected to some extent, and the negative impact next year is greater than this year. The lower limit of the first housing loan interest rate mainly affects the interest rate level of incremental housing loans. The decline of LPR for more than 5 years will affect the interest rate level of incremental loans and stock housing loans at the same time. During the year, incremental loans and partially repriced stock loans were mainly affected by the two policies. From January next year, incremental loans will continue to be affected, stock housing loans will be repriced on a large scale, and the interest margin will be affected more than that in 2022. Under certain assumptions 1, according to our calculation of listed banks, the negative impact of the two policies on the net interest margin of listed banks in 2022 is about 1.5bp, and the negative impact on listed banks in 2023 is about 2.85bp. Among them, banks with a high proportion of housing loans are more negatively affected. In the sector, as the proportion of housing loans of state-owned banks is generally higher than that of other banks, the negative impact on their net interest margin is higher than that of other types of banks. It is expected that the negative impact on the net interest margin of state-owned banks in 2022 will be 1.9bp and that in 2023 will be 3.6bp. See the attached table for the specific calculation results at the end of the year.
Investment advice. The adjustment of the housing loan interest rate policy will have a certain negative impact on the bank’s asset side yield. We calculate that the net interest margin of listed banks will be reduced by 1.5bp and 2.85bp in 2022 and 2023. In addition, in the first four months, M2 deviated significantly from the growth rate of social finance stock, indicating that credit expansion is weaker than capital, bank asset allocation may be inclined to the capital market, and the asset end yield may be subject to additional negative impact, further affecting the interest margin level. In April, both financial data and economic data were significantly weaker. At the same time, we also noticed that there was another head real estate enterprise default in the bond market, and the market’s concerns about the real economy and asset quality in the real estate sector increased. Combined with the current macro-economy, real estate market and monetary policy, we believe that the quality of bank assets, net interest margin and profitability will be negatively affected. From the perspective of valuation level, the current banking valuation is at a historically low level, and the response to pessimistic expectations is relatively sufficient. With the continuous increase of policies, it is believed that the weak expectations of the market for banks will also recover. Maintain the industry standard investment rating. Under the influence of the current macro-economy and the real estate industry, the differentiation of business quality between banks will intensify. It is suggested to pay attention to regional banks with developed regional economy and solid asset quality.
Risk tip: the asset quality of the banking industry has deteriorated significantly.
