Our views on “whether credit can be broadened and where is the key to broaden credit” and the future banking sector are as follows:
\u3000\u30001. Credit expansion has been started, and the improvement of financing structure may only be a matter of time. By the end of December 2021, the year-on-year growth rate of social finance stock was 10.3%, an increase of 0.2 percentage points over the end of November last year. The growth rate of social finance stock has been basically confirmed to be in the recovery trend, and a new round of credit expansion has been started.
At present, the market is still very “tangled”. On the one hand, it is worried that the real estate industry is difficult to improve significantly, and the real estate policy has not been significantly relaxed; On the other hand, there is little room for infrastructure development under the constraints of implicit debt of local governments. The focus of the above two concerns is that the “wide credit” may not be grasped. Where do the new social finance and credit funds go?
We believe that there is often a time lag from “credit expansion” to “recovery of effective credit demand”. According to historical experience: ① when the growth rate of social finance stock changes from contraction to expansion, the growth rate of medium and long-term loans will also stabilize and recover, with a time lag of about 3 months to 7 months; ② In addition, in the stage of bottom-up growth of social finance stock, the decline of medium and long-term loan growth of enterprises will also be significantly narrowed; ③ At the current stage, at the end of September 2021, the growth rate of social finance stock was 10%, which was the bottom of this round of social finance growth. At present, the restart of credit expansion and the recovery of effective credit demand can be more optimistic.
\u3000\u30002. From the perspective of micro research, the credit supply has increased significantly, and there have been some positive changes in financing demand. 1) The increase in credit supply is mainly driven by policies. ① the issuance rhythm of government special bonds in 2022 is ahead of that in the first quarter, with a quota of 1.46 trillion yuan, while the issuance of government special bonds in the first quarter of 2021 is obviously low. ② In terms of credit, at present, banks generally say that the new credit line in 2022 is the same or increased as that in 2021. In terms of the pace of credit supply, about 40% of the annual credit line is arranged in the first quarter of 2022, slightly higher than that in the same period of 2021. Therefore, we expect that the probability of achieving a “good start” of credit will be relatively high.
2) the change of financing demand stems from the development of infrastructure and the loosening of mortgage. ① With the acceleration of the issuance of special bonds and the use of raised funds, some banks said that since the fourth quarter of 2021, the demand for public investment has slowly begun to have a relatively large marginal improvement, including investment in infrastructure and manufacturing, with a certain credit increment. Considering that the 1.2 trillion yuan of special bonds newly issued by Q4 in 2021 will be used in the first quarter of 2022, and the 1.46 trillion yuan of special bonds issued in the first quarter of 2022 will also be put into the project as soon as possible, so as to form more physical workload in the first quarter, which will pry more medium and long-term credit demand.
② for housing related loans, we observed several positive signals. First, on October 21, 2021, the China Banking and Insurance Regulatory Commission said that it would support first home buyers in terms of loan down payment ratio and interest rate. In the following months, the mortgage loan interest rate and average loan days of mortgage loans showed a downward trend and continued to the beginning of 2022. Second, according to some grassroots research, the amount of mortgage loans of various banks has increased and their enthusiasm for investment is also rising. We expect mortgage loans to support credit growth in 2022. Third, the recovery of real estate development loans is slower than mortgage loans, but banks have increased slightly in the arrangement of development loan lines, and their enthusiasm has also increased. However, it still takes time for the development loan to fully return to normal.
\u3000\u30003. The interest rate cut has a negative impact on the net interest margin, but it does not constitute bad for bank stocks. ① On January 17, the people’s Bank of China lowered the MLF and reverse repo interest rates by 10bp each. We expect that the subsequent one-year LPR and five-year LPR may also be reduced by 10bp and 5bp respectively, with a negative impact on the bank’s net interest margin of about 1.7bp. However, considering the saving effect of liability side cost and the optimization of bank asset liability structure, the final decline of Bank net interest margin is expected to be smaller.
② the impact on bank stocks is relatively positive. On the one hand, if the subsequent five-year LPR is lowered, it indicates that the real estate policy will be further relaxed, at least the signal significance will be stronger, which will drive more obvious improvement in commercial housing sales and the real estate industry, the concern about the credit risk of the real estate industry is expected to be further alleviated, and the factor that restricts the largest bank valuation will be gradually eliminated. On the other hand, the reduction of LPR for two consecutive times means that the steady growth policy has entered the substantive landing stage, which is expected to dispel the market’s concern that the strength of the policy may be less than expected.
\u3000\u30004. The “policy bottom” of real estate is transmitting to the “market bottom”, so there is no need to be too pessimistic about the quality of bank assets. Since October 2021, a series of policy combinations to relax real estate financing, including the statements of the first bank and the two sessions on the Evergrande event, have basically confirmed that the bottom of the policy of the real estate industry has appeared. However, in the process from the bottom of the policy to the clearing of real estate credit risk, the market is also very worried: first, it is worried that new real estate enterprises will be exposed again, Second, it is worried that the real estate enterprises with existing risks will have a negative impact on the bank’s financial statements in 2022.
① in December 2021, the central bank and the China Banking and Insurance Regulatory Commission jointly issued the notice on doing a good job in M & a financial services for risk disposal projects of key real estate enterprises, which has begun to resolve the projects of risky real estate enterprises. According to Xinhua news agency, the regulators asked banks not to blindly withdraw and cut off loans for large real estate enterprises with risks and operating difficulties. Under the protection of policies, we believe that the probability of risk exposure of other real estate enterprises is decreasing.
Downtown pressure on the economy of China’s banking industry has been affected by the real estate crisis. The real estate industry risk has a significant impact on the quality of bank assets. It will experience “speculative overheating – tightening policy – falling house prices – bubble bursting – bad debts surge – downward pressure on the economy”. These stages are the main reasons for Hainan’s real estate crisis. At present, China’s real estate regulation is to restrict the flow of funds to the real estate industry from a forward-looking perspective and limit the radical addition of leverage by real estate enterprises. At the micro implementation level of the policy, there is an excessive contraction of risk appetite in the financial market, resulting in the rapid spread of credit risk exposure of individual real estate enterprises to market pessimistic expectations. However, there has not been a significant decline in house prices. At present, the central government has repeatedly stressed in public that “we should adhere to stabilizing land prices, house prices and expectations, and maintain the continuity, consistency and stability of real estate financial policies.” It is expected that there is a low possibility of significant fluctuations in the price of the real estate market in the future, and the risk pressure faced by bank real estate related loans will be much better than the pessimistic expectation of the market.
\u3000\u30005. At the current stage, with the steady growth policy entering the intensive landing stage, the real estate policy is gradually relaxed, and the opportunities outweigh the risks for the banking sector. Focus on Bank Of Ningbo Co.Ltd(002142) , China Merchants Bank Co.Ltd(600036) , Industrial Bank Co.Ltd(601166) , Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) , Postal Savings Bank Of China Co.Ltd(601658) .
Risk tip: the “good start” of credit is less than expected, and the risk exposure of the real estate industry is accelerated
