Event overview:
On January 20, the central bank issued an LPR quotation: the one-year LPR was reduced by 10bp to 3.7%, and the one-year LPR was reduced by 5bp to 4.6%.
Analysis and judgment:
Monetary policy volume and price instruments keep ahead to maintain growth
Since the RRR reduction was started in December 2021, the central bank’s monetary policy has entered the broad monetary orientation of counter cyclical regulation, and the price tools of subsequent monetary policies have followed up. In the early stage, the central bank reduced MLF and reverse repo interest rates by 10bp respectively, and further guided LPR reduction this month. At the press conference on financial statistics in 2021, the regulatory authorities said that “in 2022, we will strengthen cross cycle regulation, give full play to the dual functions of the total amount and structure of monetary policy tools, be more proactive, enterprising and focus on moving forward”. The regulatory level released the policy signal of wide currency and wide credit at the beginning of the year, committed to the forward force of the policy, and created more space for subsequent stable growth.
It was a drag on the interest rate spread, but the expectation of economic stabilization and the decline of credit risk improved the valuation repair space of the banking sector
The one-year and five-year LPR were reduced by 10bp and 5bp respectively, including the first reduction in the five-year period in 21 months, which had a slight negative impact on the bank interest margin as a whole. According to the static calculation, we expect the overall impact on the interest rate difference in 2022 and 2023 to be 2-4bp respectively. Considering the impact of the expected reduction of the deposit end interest rate under the self-discipline mechanism, the negative impact of the overall interest rate difference is relatively limited. In addition, the volume premium under the wide credit environment also partially hedges the negative impact on profits. At the same time, the valuation of the banking sector more reflects the impact of credit risk on net assets, and the policy environment of wide currency and wide credit is conducive to the stabilization of the overall economy and the decline of credit risk. Therefore, looking back on the market performance of previous easing cycles, the valuation of the banking sector at this stage often has more room to repair from the previous pessimistic level.
Investment suggestions:
Generally speaking, the range and rhythm of the LPR reduction basically meet the market expectations. The LPR price adjustment of different periods also reflects the structural guidance of monetary policy on the financing needs of entities, real estate and other departments. The further decline of entity financing costs is expected to boost the overall weak credit demand, further stimulate the financing willingness, and strengthen the logic of stable policy growth, At the same time, the risks related to the real estate industry have also been alleviated and supported to a certain extent, which is conducive to the stabilization and recovery of the overall economy.
At the industry level, the 2021 performance express of listed banks since the beginning of the year shows that the annual profit growth rate has increased steadily, the asset quality indicators are in the improvement channel, and the performance of the banking sector has been realized with certainty. At present, the corresponding Pb of the industry valuation center is only 0.6, and the capital is only 5 times. Under the expected improvement of net inflow and industry prosperity, the valuation still has a large room for recovery. It is recommended to continue to pay attention to the sector valuation repair market catalyzed by the implementation of counter cyclical regulation, and continue to recommend individual stocks with stable profit and high growth: China Merchants, Ping An, Societe Generale, Ningbo, Chengdu, Hangzhou, Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) .
Risk tips
1. The economic recovery is expected to fall, the overall recovery rhythm is lower than expected, and the credit cost continues to rise;
2. The bank’s own operational risks, and major operational risks in individual banks and regions.
