I. how about the 22-year credit planning and delivery rhythm? What is the demand for credit?
Overall communication of banks: most banks expect: 1) total: the investment volume in 2022 is basically the same as that in 2021 (about 20 trillion); 2) Rhythm: compared with previous years, it will be more advanced or more concentrated in 22q1 and the first half of the year. 3) structure: 22q1 and the first half of the year will focus on public investment, focusing on new infrastructure and traditional infrastructure, green finance and manufacturing. Most banks are willing to increase the proportion of retail business, but the delivery still needs to track the pace of recovery of demand and consumption. 4) Good start: at present, the overall development is in line with the plan at the beginning of the year, and the high-quality small and medium-sized banks in some high-quality areas have performed well. According to the types of banks: A. large state-owned banks: the start is relatively stable, and the investment volume is basically the same as that in the same period last year. Although some banks put in general at the beginning of the month, they are “catching up” by the middle of the month; B. Joint stock banks: there is a large differentiation. The investment of most joint stock banks is the same as or slightly less than that in the same period last year. The reserves and investment of individual banks are relatively positive. The full month plan has been basically completed in the first two weeks. C. Urban commercial banks and rural commercial banks: listed banks are mainly concentrated in the economically developed areas of the Yangtze River Delta. They have a positive outlook on credit growth in 2022 (mostly rising steadily compared with 21 years). At present, the demand for credit is relatively strong. Some banks have completed the annual target for deposit growth in the first two weeks, and some banks have completed more than 10% of the annual loan.
Our view:
1) under the basic tone that the total amount of credit supply is basically the same as that in the past 21 years, we are not pessimistic about the “good start”. Up to now, according to our communication with listed banks, most of the successful launch has little difference from the same period last year. The market is more worried about the investment or weakness of joint-stock banks and unlisted small and medium-sized banks, especially in economically backward regions. The overall proportion of joint-stock banks in loans is about 18%, that of unlisted urban and rural commercial banks is about 17%, and the combined proportion of the two is about 35%. From the perspective of increment, the proportion of investment volume in the whole industry in recent years is declining, or it is related to the weak growth of deposits, weak regional economic demand and other comprehensive factors.
* according to the static calculation, assuming that the loan amount is reduced by 10% compared with last year, the impact on the overall increment of loans in the whole year is – 700 billion; Further assume that the credit in January accounts for 15% of the whole year, with a negative impact of about 105 billion. Under the conservative assumption that the investment volume of other banks is basically the same as that of the same period last year, the credit investment volume in January is expected to be about 3.48 trillion, with little difference. If other banks make efforts and the subsequent investment volume increases, the gap can be filled.
2) it has been about 2 weeks since the beginning. The policy guidance has a clear direction and determination of “moving forward” and “steady growth”, and the demand and investment are expected to improve in the future. After reducing the MLF interest rate by 10bps on January 17, the central bank made a more positive statement on “steady growth” at the press conference on January 18. In terms of the total amount, it is clear that “the monetary policy toolbox should be opened wider,… To avoid credit collapse”; Structurally, it is required to take the initiative to find good projects; In terms of rhythm, it is clear to “move forward, and the plan of the year lies in spring”. On January 20, the 1-year and 5-year LPR decreased by 10bps and 5bps respectively (among which the 5-year LPR decreased for the first time after 20 months); In combination with the previous meeting on the total amount of credit held in advance, the financial “fiscal and monetary cooperation”, “moderately advanced” and “grasping the actual workload”, and the real estate to meet the reasonable needs of mortgage and development loan. Generally speaking, in the process of continuous supplement and overweight of recent policies, many banks expect that the future demand may gradually improve.
II. How to prospect the rhythm and risk trend of real estate development loans and mortgages?
Bank communication: 1) overall investment volume: most banks expect the balance of development loans and mortgages to grow steadily throughout the year, but most of the growth rate will be lower than the overall growth rate of loans.
2) development loan: since the beginning of the year, most banks have indeed increased the reserve of high-quality real estate enterprise development loan and M & a loan, but they also pay more attention to enterprise qualification, region and project status.
3) mortgage: some banks say that the current mortgage reserve is still sufficient, and the investment is expected to be balanced between months. Some banks say that the mortgage demand has weakened since the end of 2021, but with the implementation of policies such as “meeting reasonable demand”, the demand may “hit the bottom and rise”. Moreover, under the requirements of concentration management, the bank supply has decreased compared with previous years. For example, among the listed banks, the proportion of mortgage of five banks is relatively high and needs to be gradually reduced. Taken together, the annual investment volume of these banks will reach 750 billion in 2020 and before. After 21 years, the annual amount will be reduced to less than 500 billion. Therefore, on the premise that the demand is expected to pick up marginally and the supply has “contracted” since 21 years, it is expected that the mortgage loan investment in 22 years will not be “cold”.
From the perspective of risk, the risk of high-quality listed banks is expected to be controllable. Its own real estate exposure is relatively low (for example, Bank Of Ningbo Co.Ltd(002142) real estate loans + mortgage loans account for only 9% of the total loans, China Merchants Bank Co.Ltd(600036) full caliber balance of public real estate is 520.4 billion, accounting for less than 10% of the total assets, and the balance of off balance sheet businesses that do not bear credit risk (including financial capital contribution, consignment trust, etc.) is 478.8 billion, a steady decline compared with 2020. Moreover, it mainly invests in the real estate enterprises in the first and second tier cities with good project qualification, and has long been confirmed as bad in advance. In addition, it has earlier clearing pace in the past few years, limited stock and incremental risks, high provision coverage and strong risk ability.
III. how about the deposit? The dividend of “price” is still releasing, vs “quantity” has a good start, and the medium and long-term competition is still fierce
Bank communication: most banks reported that during the “good start” period, the deposit absorption was better (some banks were better than the same period in previous years), or it was related to the better deposit derivation when the loan was relatively active; And before and after the Spring Festival, residents have relatively more funds on hand. In terms of pricing, most banks said that the dividends from the reform of deposit self-discipline mechanism will be gradually released with the progress of “repricing” or in 2022.
It is expected that the differentiation of the deposit side of each bank will be reflected in three aspects:
1) banks with high proportion of medium and long-term deposits have more room to release dividends from the reform of deposit self-discipline mechanism.
For example, Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) and postal savings time deposits account for a relatively high proportion (58% and 66% respectively in 21h), and there is much room for the decline of high-cost deposit interest rates (for example, according to the calculation of the central bank, after the reform of self-discipline mechanism, the interest rates of newly issued 2-year, 3-year and 5-year time deposits have decreased by 0.25pc, 0.43pc and 0.45pc respectively compared with may), which will continue to benefit in 2022;
2) for banks with strong core deposit advantages and high demand deposits, they will continue to give full play to their comprehensive business advantages and maintain their deposit cost advantages. For example, although the proportion of demand deposits in China Merchants Bank has been very high (66%), its retail end will continue to deposit demand deposits through AUM and wealth management business advantages, and its corporate cost ratio will continue to drop significantly by 16bps in 21h, and the proportion of demand deposits will steadily increase by 0.54pc, which will continue to expand compared with other banks, This trend is expected to continue in the future;
3) small and medium-sized banks with strong customer stickiness of core enterprises will have more prominent deposit precipitation advantages through the operation of core accounts; At present, more and more government and Financial deposits are “bidding”
In the case of globalization, small and medium-sized banks need to become the “core account” of enterprises. For example, Bank Of Ningbo Co.Ltd(002142) precipitates low interest settlement deposits through its strong and diversified business strength and the trump product of “five tubes and two treasures”. In addition, the rapid development of wealth management business is conducive to obtaining demand deposits. In 21h, its overall demand deposits increased by 1.29pc to 46.1% compared with the beginning of the year, Leading comparable peers.
It is expected that in the environment where the loan interest rate is still marginally downward in 22 years, the deposit cost may be the key to the differentiation of bank interest margin. Banks with strong deposit advantages or fully benefited from the reform of self-discipline mechanism are expected to highlight the advantages of interest margin relative to the industry.
IV. how to forecast the interest rate spread under the influence of interest rate reduction? There is a certain pressure throughout the year, but the bank communication will remain stable: there is downward pressure on the loan yield under the transmission of asset side LPR reduction; However, the liability side policy also emphasizes maintaining the competitive order of the deposit market and stabilizing the cost of bank liabilities. After the reform of deposit self-discipline mechanism, the dividend will continue to be released in 22 years. Therefore, although there is downward pressure on the interest margin, it is expected to remain stable throughout the year, or decline slightly, narrower than that in 21 years (the industry wide interest margin decreased by 4bps in the first three quarters of 21 years). There is great differentiation among banks, and the judgment of interest margin of large state-owned banks and joint-stock banks is relatively consistent (mostly stable and slightly reduced), but many small and medium-sized banks with strong core business competitiveness, developed regional economy and strong credit demand still have a stable outlook on interest margin.
Considering the reform of deposit self-discipline mechanism and the reduction of reserve requirements, we calculate that the impact on banks after the interest rate cut is relatively limited. Considering the 10bps reduction in the MLF, the 1-year and 5-year LPR in January will be reduced by 10bps and 5bps respectively, and then comprehensively considering the impact of the 5bps reduction in the 1-year LPR in December, it is estimated that 2022: 1) the loan yield will decrease by 8bps, which will have a negative impact on the interest margin of 5bps; 2) The implementation of RRR reduction in December (0.5pc reduction in general) will increase the interest margin by 1bp; 3) It is estimated that the dividend release from the reform of deposit self-discipline mechanism will increase the interest margin 3bps in the next year; 4) The interest rates of inter-bank liabilities and inter-bank assets decreased by 10bps at the same time, which supported the interest margin by 1bp. In this way, when other factors remain unchanged, the interest rate spread in 2022 may be basically flat.
V. asset quality: risks in some areas have improved, but it is expected to communicate with good banks steadily in 2022: 1) most banks feed back that various indicators of asset quality will remain stable or improve steadily in 2021; 2) At the margin, the risks of some industries have increased, such as the debt risks of individual real estate enterprises and their upstream and downstream, and some areas with great economic pressure; 3) However, most banks have indicated that their loans are mainly invested in economically developed regions and enterprises with better qualifications, and have done a good job of investigation. After the improvement of non-performing loans and increased provision in the past few years, their risk resistance has been strong, and it is expected that the stable and good trend will remain in 2022.
More attention should be paid to the differentiation of bank asset quality in 2022. Since 2017, China Merchants Bank, Ningbo and other high-quality banks have taken the lead in clearing the asset quality. While the overdue rate has decreased rapidly, the non-performing generation rate has basically remained at a low level of about 0.5%, and the provision coverage has continued to rise to a high level of 441% (China Merchants Bank) and 522% (Ningbo), At the same time, the non credit provision has been strengthened (the off balance sheet provision pools of China Merchants Bank and Ningbo have reached 20.9 billion and 2.9 billion respectively, equivalent to 38.3% and 46.4% of their non-performing loans, significantly leading the industry). At the same time, Hangzhou, Suzhou, Bank Of Chengdu Co.Ltd(601838) etc. have also continuously decreased the non-performing rate for three consecutive years since 2019, and the provision coverage has increased to 559%, 424% and 387% respectively. In the past few years, they have also basically achieved the improvement of clearing. These banks that take the lead or basically clear the risks in the near future have strong risk resistance at present and are more capable of maintaining stable performance in the future under the current environment.
Vi. what are the future goals of wealth management? Banks are “ready to go”
Bank communication: most banks continue to place their wealth management business in an important strategic position and will continue to increase investment. Many banks have set quantitative AUM growth and structural optimization targets. For example, some national banks have set the average annual growth target of about 15% in the next five years. Some banks hope that the proportion of AUM / total assets will be close to the industry leader (the proportion of 21q3 CMB is 116%, while most banks are less than 50%). In addition, many banks have formulated detailed objectives and plans, such as optimizing AUM structure, increasing the proportion of high net worth customers, increasing network layout and personnel investment, strengthening the linkage of all lines, building a “full staff wealth management system”, etc.
China’s wealth management business is in the “tuyere” and has huge space in the future. It is simply estimated that the average annual growth rate of China’s financial assets (AUM) and risk financial assets (excluding deposits) may reach 11% and 15% in the next five years. As the “C” among all institutions of wealth management business, banks will fully benefit. Starting from this main line, we suggest to actively pay attention to the banks with excellent endowments in the field of wealth management and who have been significantly ahead of their peers (such as China Merchants Bank Co.Ltd(600036) , Bank Of Ningbo Co.Ltd(002142) , Ping An Bank Co.Ltd(000001) , Postal Savings Bank Of China Co.Ltd(601658) )
VII. Refinancing demand
Pay attention to the process of converting convertible bonds into shares of some small and medium-sized banks.
From the perspective of bank exchanges, many small and medium-sized banks have strong demands for convertible bonds to shares. Except that China Merchants Bank Co.Ltd(600036) itself has light capital consumption and strong endogenous capital supplement ability, and has no equity financing in the past seven years, most banks said that on the basis of improving their capital retention ability brought by their own profits, they will also study appropriate and feasible external refinancing methods according to their own needs. Some banks that have issued convertible bonds said that under the background of “stable growth” in 22 years, with the macroeconomic repair, it is expected to drive the improvement of the valuation of the banking sector. They hope to speed up the pace of equity conversion through their own performance and supplement the core tier 1 capital through equity conversion. From the perspective of fundamental analysis, small and medium-sized banks do need to supplement their core Tier-1 capital through share conversion.
At the denominator end, the RWA growth rates of listed cities and rural commercial banks in 2021h were 14.14% and 12.54% respectively, an increase of about 3pc over 2019; At the molecular end, systemically important banks will be officially launched in 2021, and the capital requirements will be further improved. At the same time, the valuation of most banks is “breaking the net”. From the way of supplementing core tier 1 capital, there may be some difficulties in fixed increase. It is expected that allotment of shares and conversion of convertible bonds into shares may be the “best choice”.
At present, many banks with better qualifications have issued convertible bonds or issued relevant plans, so they can actively pay attention to the investment opportunities of these banks, such as: Bank Of Nanjing Co.Ltd(601009) (20 billion, has entered the stock conversion period, and the current stock price still has 33% space from the mandatory redemption price), Bank Of Hangzhou Co.Ltd(600926) (15 billion, has entered the stock conversion period, and 18.8% space) Bank Of Suzhou Co.Ltd(002966) (5 billion, has entered the stock conversion period, with 52% space), Bank Of Jiangsu Co.Ltd(600919) (20 billion, has entered the stock conversion period, with 23% space), Jiangsu Zhangjiagang Rural Commercial Bank Co.Ltd(002839) (2.5 billion, has entered the stock conversion period, with 12.4% space), Industrial Bank Co.Ltd(601166) (50 billion, has entered the stock conversion period at the end of June 22, with 54% space). Plans for Bank Of Chengdu Co.Ltd(601838) (8 billion) and Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) (6 billion) have been announced and are expected to be implemented in 2022.
investment suggestions: continue to be optimistic about the “restless spring” market of the banking sector.
1) from the perspective of the previous round of “wide credit” cycle, after the growth rate of social finance stabilizes, the bank’s stock price tends to stabilize, while when the credit is wide (medium and long-term financing is improved), the bank can often usher in a larger and more sustainable market. At present, the credit supply of most listed banks is basically the same as that of last year, and the pace is more advanced. With the superposition of the recent “forward force” and “steady growth” policies (such as the recent interest rate cut and the central bank’s repeated emphasis on “promoting stability”, etc.), they continue to be optimistic about the “small peak” of Q1 credit. It is worth noting that this round of steady growth policy is very positive and the direction is relatively clear. Under the rapid overweight of the policy, we are optimistic about the “spring agitation” market after the formation of broad credit expectation, which is first reflected and catalyzed by the market.
2) recently, the bank’s 2021 performance express has been intensively disclosed, showing a bright performance, or becoming a “catalyst” (the disclosed 14 banks’ annual revenue increased by 10.9%, profit increased by 21.7%, continued to maintain high growth, while the non-performing rate was 1.05%, continued to decline by 4bps compared with the end of September, and the provision coverage increased by 7.3pc to 313.2%).
Individual stocks are recommended to focus on three main lines and select “small” β Combination “: 1) select high-quality stocks and cross the cycle; 2) Wealth management, China is in the “tuyere” of outbreak. 3) “Wide credit” or on the road, regional leaders and high-quality small and medium-sized banks have expansion flexibility. Starting from the above three main lines, we select “small” β “Combination”:
Robust leading stocks ( Bank Of Ningbo Co.Ltd(002142) , China Merchants Bank Co.Ltd(600036) ), banks with undervalued retail characteristics and improved operation ( Postal Savings Bank Of China Co.Ltd(601658) , Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) , Ping An Bank Co.Ltd(000001) ), high-quality small and medium-sized banks with expansion flexibility and strong willingness to convert convertible bonds into shares under a wide credit environment ( Bank Of Chengdu Co.Ltd(601838) , Bank Of Nanjing Co.Ltd(601009) , Bank Of Hangzhou Co.Ltd(600926) , Bank Of Suzhou Co.Ltd(002966) , Jiangsu Zhangjiagang Rural Commercial Bank Co.Ltd(002839) ).
risk tip: macroeconomic deterioration, monetary policy shift beyond expectations, and financial supervision exceed expectations.
