The Zhitong Finance App learned that Cinda Securities released a research report saying that it expects the continuity of policy tools. Currently, we can focus on banks with strong sustainability in fundamentals and where risks are expected to be gradually cleared. The bank believes that bank interest spreads are still under pressure to narrow in 2024, mainly implying expectations of factors such as LPR cuts and banks' assistance in resolving local debt. The proposal focuses on banks with strong performance that are expected to gradually improve in asset quality.

The bank pointed out that in the next stage, it can focus on: 1) banks with high fundamentals, expected to improve performance sustainability, and new regional highlights: Qilu Bank (601665.SH), Changshu Bank (601128.SH), and Ruifeng Bank (601528.SH); 2) banks that can be expected to contribute to real estate restoration and risk mitigation as market policies and economic expectations are strengthened: China Merchants Bank (); 3) in the context of state-owned enterprise reform, national banks with solid basic functions+undervaluation+high dividends: Postbank (DAB), Agriculture 600036.SH 601658.SH Bank (601288.SH), China CITIC Bank (601998.SH).

Cinda Securities's views are as follows:

The central bank released social finance data on February 9. At the end of January 2024, the social finance scale stock was 384.29 trillion yuan, up 9.5% year on year; the increase in social finance scale in January was 6.5 trillion yuan, an increase of 506.1 billion yuan over the same period last year. Around the Spring Festival holiday, a number of banks, represented by major companies, implemented coordination mechanisms to support real estate financing. Six major banks have connected and obtained more than 8,200 projects, and financial institutions have been quite effective in supporting real estate financing.

Credit continued to be a “good start” in January, and corporate bonds boosted social finance growth. RMB 4.84 trillion was added in January, an increase of 91.3 billion yuan over the same period last year, which is a slight decrease from the same period last year, and the number of new loans added in January 2023 was the highest compared to previous years, so January achieved a “good start” for credit. Looking at social finance incentives, bank acceptance notes and corporate bonds were the main contributors in January, adding 563.5 billion yuan and 483.5 billion yuan respectively, with year-on-year increases of 267.2 billion yuan and 319.7 billion yuan respectively. We believe that in the context of declining interest rates on treasury bonds and corporate bonds, enterprises tend to use bonds to meet financing needs. In terms of credit investment, credit increased by 4.92 trillion yuan in January, an increase of 16.2 billion yuan over the previous year. Among them, residential loans increased by 980.1 billion yuan, an increase of 722.9 billion yuan over the previous year, mainly due to last year's low base. We believe that the pace of credit investment will tend to be smooth during the year, and the “good start” will continue in the first quarter.

A number of banks have implemented coordination mechanisms to support real estate financing, and project docking has already worked. At present, the six major banks and a number of joint stock banks, Societe Generale, CITIC, and SPD have held meetings on relevant topics to efficiently and accurately connect with real estate projects and meet their reasonable financing needs. Among them, six major banks have obtained and connected with at least 8,200 projects, and each bank has set up real estate financing coordination groups and special classes to push for real estate projects to be implemented as soon as possible. On February 6, the Financial Services Regulatory Bureau emphasized the further deployment and implementation of urban real estate financing coordination mechanisms; from January 24 to 25, the press conference of the State Information Office emphasized that financial responsibility is indispensable to support real estate, and that precise support, financing collaboration, and physical workload should be formed as soon as possible. In 2023, bank development loans and mortgage loans were nearly 10 trillion yuan, providing mergers and acquisition loans and stock rollover loans to real estate companies totaling more than 1 trillion yuan. Banks supported the real estate industry on a large scale of credit. At the beginning of the year, the central bank approved a 100 billion rental housing loan support plan to revitalize existing housing stocks and expand the supply of rental housing through market-based methods. We believe that under the requirements of financial support for real estate, credit support, coordination and speedy implementation, the financing needs of the real estate industry will be effectively met, and it is expected that long-term healthy development will be achieved.

Looking at the main data released by the US during the Spring Festival, the US CPI in January was 3.1% year on year, down 0.3 percentage points from December 2023; the core CPI was 3.9%, the same as December 2023, but the month-on-month adjustment was the highest value since May last year. We believe that the current decline in core inflation is still hindered, and the possibility of interest rate cuts may have decreased. On February 16, the US 10-year Treasury yield rose to 4.3%, up 13BP from last week; the 10-year real yield on US Treasury bonds was 1.97%, up 5BP from last week.

The central bank downgraded at the beginning of the year. Regulations emphasized aspects such as financial satisfaction with real estate financing, support for the real economy, and prevention of financial risks. Next, active fiscal policies and monetary policies are expected to be introduced intensively. In the context of policy expectations driving improvements in economic expectations, banks, as an important part of the recovery of the real economy, can be expected to recover their valuations, and are expected to continue to achieve absolute returns. Currently, the bank's PB (LF) is around 0.56x, and disturbances such as declining interest spreads and risk factors have already been reflected in the valuation.

We believe that: 1) Policy expectations will open up or bring attention to the banking sector. Banks are pro-cyclical sectors. The latter half of the economic cycle is often a trigger point for bank beta markets. Policies favor the restoration of bank fundamentals, and real estate and city investment risks are expected to be gradually resolved; 2) The characteristics of high dividends are highly deterministic. The total dividends of listed banks in 2022 exceeded 580 billion yuan, and the dividend income from the current allocation of bank stocks is relatively stable. 3) Bank interest spreads will still be under pressure in 2024, and pressure on performance will still exist, but asset quality is expected to continue to improve as poor real estate and other defects continue to be cleared.

Investment advice:

Looking forward to the sustainability of policy instruments. Currently, we can focus on banks with strong sustainability in fundamentals and where risks are expected to gradually clear up. We believe that bank interest spreads are still under pressure to narrow in 2024, mainly implying expectations of factors such as LPR cuts and banks' assistance in resolving local debt. The proposal focuses on banks with strong performance that are expected to gradually improve in asset quality.

In the next stage, we can focus on: 1) Banks with high fundamentals, where performance sustainability is expected to be strengthened, and there are new regional highlights: Qilu Bank, Changshu Bank, and Ruifeng Bank; 2) banks that are expected to rehabilitate real estate and can be mitigated by risk mitigation as market policies and economic expectations are strengthened: China Merchants Bank; 3) National banks with solid basic skills+undervaluations+high dividends in the context of state-owned enterprise reform: Postbank, Agricultural Bank, and China CITIC Bank.

Risk Factors:

The decline in macroeconomic growth may affect banking performance; failure to implement policies as expected may affect the development of banking business, etc.