The Zhitong Finance App learned that since the beginning of the year, the banking sector's market has mainly been based on safe-haven logic based on pessimistic market expectations. Looking ahead, the banking sector's “balance offense and defense” logic has not changed at the fundamental level. After many rounds of adjustments such as interest rate cuts, accelerated exposure of real estate risks, rate cuts, and first-quarter loan repricing, etc., the first quarter's performance fell to a low level. Potential losses in the industry are expected to be exhausted. In the long run, the upward flexibility depends on the macroeconomic and real estate repair process. At the dividend level, in a low interest rate environment, the scarcity and relative certainty of high-dividend assets are evident. Hard pressure on debt-side interest rates may prompt insurance capital to actively allocate high dividends and undervalued banking sectors. Recently, the industry's cash dividend ratio has continued to rise. Eleven banks, including the five major banks, Suzhou, and Jiangsu, announced that they plan to pay mid-term dividends in 2024, and the appeal of high dividend value is becoming more and more prominent.

The main views of Dongguan Securities are as follows:

Both revenue and profit grew negatively, and individual stocks continued to diverge

In 2023, 42 listed banks achieved net profit of 2.09 trillion yuan, a year-on-year growth rate of +1.44%. In 2024Q1, the net profit growth rate of listed banks fell 2.05pcts to -0.61% under the pressure of loan repricing, turning negative for the first time since 2020. The provision continued to feed back net profit, but the contribution gradually weakened. Looking at individual stocks, in the first quarter, when the pressure to reprice loans was concentrated, 31 banks achieved positive net profit growth, 11 banks experienced negative growth, and individual stocks were further divided.

Loans are strong against the public sector and retail are weak, and deposit regularization continues

(1) Asset side: Total loans from listed banks increased by 11.14% and 10.09% year-on-year in the first quarter of 2023 and 2024, respectively. In the first quarter of this year, due to requests from relevant regulatory authorities to strengthen balanced credit investment, this year's “good start” cooled down, and the pace of credit slowed down. Among the new loans added by listed banks year-on-year in 2023, corporate and personal loans increased by 79.12% and 17.90%, respectively, compared with +15.63pcts and -0.96pcts in 2022, respectively.

(2) Debt side: Listed banks accounted for 39.30% of demand deposits at the end of 2023. Compared with 2022 - 4.07pct, the share of demand deposits in all banking sectors fell to historic lows, and the deposit structure continued to lean towards regular periods. The reason is that against the backdrop of macroeconomic and financial market fluctuations and consumer spending and investment intentions have not yet recovered, term deposits with relatively low risk and stable returns are more popular.

Net interest spreads continue to narrow, and there are positive signs on the debt side of some banks

In 2023, the net interest spread of listed banks was 1.69%, down 0.08pct from the first half of 2023. The return on interest-bearing assets and the cost ratio of interest-bearing debt were 3.65% and 2.09% respectively. Compared with the first half of 2023 -0.06pct and +0.01pct2024q1, respectively, the net interest spreads of listed banks continued to decline to 1.55% due to the repricing of loan interest rates. Thanks to several lower deposit interest rates in 2023 and the optimization of debt structures by various banks, the debt-side costs of 16 banks in 2023 improved compared to 2023H1, hedging the pressure on the asset side to a certain extent.

Overall asset quality is stable

(1) Non-performing ratio: In 2023, the non-performing loan ratio of listed banks was 1.26%. The non-performing loan ratios of banks in the four major sectors all improved year-on-year. In the first quarter of 2024, the non-performing rate of listed banks was -0.01pct compared to 2023 to 1.25%.

(2) Attention rate: In 2023, the interest rate of listed banks was 1.73%, and the overdue rate was 1.27%, up 0.06 and 0.02 percentage points from the first half of 2023, respectively. In the first quarter of 2024, the attention rate of 19/33 banks increased, and the attention rate fluctuated slightly due to the stricter classification of the new regulations.

(3) Provision coverage rate: In the first quarter of 2024, the provision coverage rate of listed banks continued to increase to 244.09%, and the overall reimbursement capacity was sufficient.

Bank stock investment recommendations focus on three main lines:

First, it is recommended to focus on Agricultural Bank (601288.SH), Bank of China (601988.SH), Bank of China (), Industrial and Commercial Bank (601398.SH), and China CITIC Bank (), which are more likely to achieve valuation reshaping in the context of “medium overestimation.” 601998.SH

Second, focus on regional banks benefiting from regions with strong economic prosperity and strong performance certainty: Bank of Chengdu (601838.SH), Bank of Ningbo (002142.SZ), Bank of Jiangsu (600919.SH), Bank of Hangzhou (600926.SH), and Bank of Changshu (). 601128.SH

Third, it is recommended to focus on China Merchants Bank (600036.SH), which has strong comprehensive management capabilities, steady performance, and benefits from real estate risk mitigation and outstanding advantages in retail business and wealth management business under macroeconomic restoration.

Risk warning: Risk that consumer consumption and corporate investment will fall short of expectations due to economic fluctuations; risk of weakening credit demand and pressure on bank asset quality due to falling short of expectations in real estate; risk that falling market interest rates will cause bank asset-side returns to decline, and net interest spreads will continue to be pressured.