Talk every Monday: loose policies help banks improve their valuation
Event: on January 20, the people’s Bank of China authorized the national interbank lending center to announce that the quoted interest rate (LPR) of the loan market on January 20, 2022 is: 1-year LPR is 3.7%, and more than 5-year LPR is 4.6%. 10 BP in one-year period and 5 BP in more than five years.
The time and range of this interest rate cut are in line with market expectations
The market quoted interest rate (LPR) of one-year loan decreased by 10bp to 3.70% compared with the previous month, and the market quoted interest rate (LPR) of five-year loan decreased by 5bp to 4.60% compared with the previous month. Generally speaking, the time and range of interest rate reduction are in line with market expectations:
Policies should be made in advance to help the economy. Before and after the central economic work conference proposed that the policy force should be properly relied on, the central bank issued a series of measures, including reducing the reserve requirement by 0.5 percentage points in December and guiding the one-year LPR to decline by 5 basis points in January, which are the embodiment of the front-end policy. This interest rate cut is also the result of the policy’s early efforts, providing space for subsequent steady growth, which is generally in line with the recent policy tone.
The reduction is in line with market expectations. Looking back on the last round of interest rate reduction cycle, there were two months when MLF was reduced by more than 10bps. One was in February 2020, MLF was reduced by 10bps, one-year LPR was reduced by 10bps, five-year LPR was reduced by 5bps, and the other was in April 2020, MLF was reduced by 20bps, one-year LPR was reduced by 20bps, and five-year LPR was reduced by 10bps. Both show that the reduction range of LPR in one-year period is the same as that of MLF, and the reduction range of LPR in five-year period is half of that of MLF. Therefore, this interest rate reduction is consistent with the previous two situations, and the reduction range is in line with expectations.
Interest rate cut provides a favorable environment for bank operation
On the whole, we believe that the interest rate cut is good for banks. Under the background of loose policies, the demand for bank loans is restored, the growth rate of revenue is accelerated, and the asset quality is improved, and the provision has the space to release profits. The bank performance is expected to maintain a high growth in 22 years:
From the perspective of net interest margin, the reduction of LPR is expected to have a limited impact on the bank’s net interest margin. This is mainly because a number of policies have been issued to reduce the debt end cost of banks before the interest rate cut, including the market interest rate pricing self-discipline mechanism in June 21, which optimized the determination method of the self-discipline upper limit of deposit interest rate, and the central bank reduced the bank’s deposit reserve ratio in July 21 and December 21.
From the perspective of loan lending, the introduction of the credit easing policy is conducive to loan lending. In addition, the central bank has repeatedly stressed “enhancing the stability of the growth of total credit and increasing support for the real economy”. It is expected that the loan demand will recover in 22 years. In the case of price supplement by volume, the growth rate of bank revenue will accelerate.
From the perspective of asset quality, the pressure on bank asset quality is reduced. On the one hand, the interest rate cut is conducive to reducing the debt burden of enterprises and improving their operation. On the other hand, under the environment of loose policies, the downward pressure on the economy is reduced, which is conducive to improving the business environment and loan willingness of enterprises, forming a virtuous circle.
Investment strategy: as of this week, 16 listed banks have released performance letters. On the whole, revenue and profit have increased rapidly and asset quality has been improved. The overall revenue and net profit growth of 16 listed banks in 2021 were 11.2% and 21.7% respectively, and the non-performing loan ratio was 1.06%, which decreased by 4bps compared with the end of the third quarter, and the provision coverage rate was 312%, which increased by 7.8pct compared with the end of the third quarter. It is suggested to pay attention to the banks with sound operation and excellent performance in the 21-year performance express, such as Industrial Bank Co.Ltd(601166) , China Merchants Bank Co.Ltd(600036) , Ping An Bank Co.Ltd(000001) , Bank Of Ningbo Co.Ltd(002142) , Bank Of Jiangsu Co.Ltd(600919) , Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) , Jiangsu Zhangjiagang Rural Commercial Bank Co.Ltd(002839) .
Risk warning: policy risk; The risk of macroeconomic recovery falling short of expectations; The global covid-19 epidemic continues to deteriorate.
