Event on January 17, 2022, the central bank carried out RMB 700 billion medium-term lending facility (MLF) operation and RMB 100 billion open market reverse repurchase operation, accumulating net investment. The bid winning interest rate of medium-term lending facility (MLF) operation and open market reverse repurchase operation decreased by 10 basis points.
This round of interest rate cuts reflects the implementation of the requirements of the central economic work conference to stabilize the macro-economic market + appropriately advance the policy force. At the same time, it helps to deal with the potential impact brought by the enhanced expectation of the Fed’s interest rate increase in March. We believe that there is still room for force at the follow-up policy level to continue to help stabilize economic growth. In addition to maintaining reasonable and sufficient liquidity in terms of total amount, monetary policy is expected to further increase structural support for small and micro enterprises, scientific and technological innovation and green development. At the same time, the accelerated expectation of special bond issuance and moderately advanced infrastructure investment are expected to further expand the space for social financing and credit growth.
The decline of MLF interest rate is expected to drive down the loan pricing, which is good for the overall financing cost of real enterprises, and form a support for credit demand. According to historical experience, the interest rate cut is expected to reduce 1-year LPR 10bp and 5-year LPR 5bp. According to the social finance performance at the end of 2021 and the information disclosed in the banker’s survey report of the central bank in the fourth quarter, the credit demand represented by medium and long-term loans of enterprises is still in a weak state. The pressure drop in the cost of benefiting loans in the first quarter and the impact of centralized credit supply at the beginning of the year are facing the opportunity of substantial improvement. From the data of November and December 2021, the new RMB loans of financial institutions are lower than that in the same period of 2019, and the overall decline trend is maintained, while the medium and long-term loans of new enterprises have negative growth for five consecutive months, with the scale reaching a new low in 2021. In 2021q4, the bank loan demand index was 67.7%, the lowest point in recent three years, only slightly higher than that in 2020q1.
There will be pressure on the bank’s interest margin, but at the same time, it is expected to benefit from the improvement of credit demand and realize the compensation by volume. Regardless of the impact of the increase of credit supply, it is assumed that the interest rate of interest bearing liabilities other than deposits for short-term loans and medium and long-term loans will decrease by 10bp. It is calculated according to the bank’s existing interest bearing asset allocation, loan structure and liability structure, The impact of the interest rate cut on the interest margin of listed banks is about -2.84bp, which faces certain pressure in the short term, but the subsequent increase in credit supply and the continuous release of the effectiveness of deposit pricing reform will partially reduce the impact of the interest rate cut.
Investment suggestions from the recent disclosure of the annual performance express, the fundamentals of listed banks are stable as a whole, the performance continues to improve, and the asset quality is optimized, which supports the performance of sectors and individual stocks, superimposing the current banking sector pb0 64 times, at the quantile of 3.2% since 2016, with good configuration value. Comprehensively considering the impact of interest rate reduction, we pay attention to the opportunities brought by the repair of credit demand and the release of non-performing risks under the macro-economy underpinned by the steady growth policy, and track two main lines: (1) high quality urban commercial banks and rural commercial banks with obvious location advantages, strong growth momentum at the asset side, effective compensation by volume and asset quality maintaining the leading level in the industry are recommended to Bank Of Ningbo Co.Ltd(002142) (002142) Bank Of Nanjing Co.Ltd(601009) (601009), Bank Of Chengdu Co.Ltd(601838) (601838), Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) (601128), and Bank Of Hangzhou Co.Ltd(600926) (600926); (2) For banks with high contribution to intermediate business income, leading wealth management and investment banking business layout, obvious transformation effect and relatively less disturbed by interest rate reduction, China Merchants Bank Co.Ltd(600036) (600036), Ping An Bank Co.Ltd(000001) (00000 1) and Industrial Bank Co.Ltd(601166) (601166) are recommended.
The risk indicates that the macroeconomic growth is lower than expected, resulting in the risk of deterioration of asset quality.
