The Zhitong Finance App learned that Galaxy Securities released a research report saying that interest rate cuts put pressure on asset-side earnings in the short term, but from a medium- to long-term perspective, they are beneficial to investment and consumption, promote economic growth and the steady and healthy development of the real estate market, and help improve the bank's business environment and mitigate adverse risks. At the same time, the credit opening data at the beginning of the year exceeded expectations and the superposition policy continued, supporting banks' fundamentals and valuations. Continue to be optimistic about the allocation value of the banking sector, adhere to a high dividend strategy, and focus on investment opportunities for high-quality regional urban and agricultural commercial banks with strong certainty in performance growth and undervaluation. In terms of individual stocks, we recommend China Construction Bank (601939.SH), Industrial and Commercial Bank (601398.SH), Changshu Bank (601128.SH), etc.
Incidents:
On February 20, 2024, the People's Bank of China authorized the National Interbank Lending Center to announce that on February 20, 2024, the loan market quoted interest rate (LPR) was 3.45%, the same as the previous month. The LPR for a term of 5 years or more was 3.95%, down 25 BP from the previous month.
▍ The main views of Galaxy Securities are as follows:
The 5-year LPR decline reached a record high, which is conducive to reducing financing costs for the real economy and boosting confidence and expectations:
Since the LPR reform in August 2019, the 5-year LPR has cut interest rates a total of 8 times, with the first 7 being between 5-15 BP. This round of interest rate cuts is the biggest drop in history, helping to narrow interest spreads between long and short-term loans, driving the overall cost of financing in the real economy downward, and also reflects a policy orientation of steady growth and steady expectations, which is beneficial to consumption and investment.
On February 18, 2024, the third plenary session of the State Council was held, sending a strong signal to promote hard work, implementation, and confidence. The conference pointed out that at the beginning of the year, it is necessary to do more things conducive to boosting confidence and expectations, maintain consistency and stability in policy formulation and implementation, and boost the confidence of the whole society through practical and strong actions.
Asymmetric interest rate cuts help the steady and healthy development of the real estate market:
The unadjusted 1-year LPR is expected to be greatly affected by intensive pricing at the beginning of the year, current round of medium- and long-term loan interest rate adjustments, and pressure at the level of net interest spreads. There is still demand to stabilize interest spreads. As of the end of December 2023, the weighted average interest rate for RMB loans from financial institutions was 3.83%, the lowest in recent years. Among them, the weighted average interest rate for corporate loans was 3.75%. In contrast, the 5-year LPR reduction is conducive to reducing residents' housing purchase costs and interest expenses, and is of positive significance in stabilizing the real estate market.
By the end of 2023, the cumulative sales area and sales volume of commercial housing decreased by 8.5% and 6.5% year on year. Support at the policy level has increased, which is conducive to improving residents' demand for housing purchases and the liquidity of housing enterprises, and promoting the stabilization of bank mortgage loan investment and the release of bad real estate risks.
The current round of LPR downturn is expected to affect banks' net interest spreads - 10.6BP, and there is still room for adjustment in deposit listing interest rates:
Assuming that all medium- and long-term loans in financial institutions' stock are repriced, it is estimated that the impact of this asymmetric interest rate cut on loan-side pricing is -16.75 BP, reducing interest income by 406.277 billion yuan, and the impact on net interest spreads in the banking sector is roughly -10.6BP. From the perspective of stabilizing interest spreads, maintaining reasonable profits, and supplementing capital, the probability that bank deposit listing interest rates will continue to be lowered has increased.
The monetary policy implementation report for the fourth quarter of 2023 indicates that it is necessary to continue to deepen the reform of interest rate marketization, further improve the mechanism for forming quoted interest rates in the loan market, give full play to the role of a market-based adjustment mechanism for deposit interest rates, and promote a steady decline in comprehensive social financing costs. The possibility that interest rates on deposits will be lowered again in the future to hedge against the impact of interest rate cuts and stabilize interest spreads is not ruled out.
Risk warning
There is a risk that asset quality will deteriorate as a result of macroeconomic growth falling short of expectations.