As of the end of '23, the cumulative year-on-year growth rates of revenue, profit before provision, and net profit to mother of the 21 A-share listed banks that have disclosed their annual reports remained flat and changed by 0.6 pct and -1.1 pct, respectively, compared to 23Q3.
The Zhitong Finance App learned that Orient Securities released a research report saying that as of the end of '23, the cumulative year-on-year growth rates of revenue, profit before provision, and net profit due to mother of the 21 A-share listed banks that had disclosed annual reports remained flat and changed by 0.6 pct and -1.1 pct, respectively. By type, the disclosed annual reports of state-owned industries were relatively stable, and agricultural and commercial banks were definitely leading the growth rate. The bank believes that the fundamentals of bank operations are expected to bottom out in 2024. It is concerned about the strength of banking sector risk settlement after confirmation, the inflection point of interest rates on new loans, and the bottoming of bank interest spreads after debt costs for all sectors of society fall. Currently, the monetary and credit environment is friendly, and finance is also expected to step forward to stabilize economic expectations, and continue to be optimistic about bank stock performance.
Orient Securities's views are as follows:
Other non-interest income improved markedly, and the agricultural and commercial sector led the growth rate.
As of the end of '23, the cumulative year-on-year growth rates of revenue, profit before provision, and net profit to mother of the 21 A-share listed banks that have disclosed their annual reports remained flat and changed by 0.6 pct and -1.1 pct, respectively, compared to 23Q3. Looking at the breakdown, revenue support mainly comes from a sharp recovery of 13.3 pct in net other non-interest income compared to 23q3, while the growth rates of net interest income and net handling fee revenue continued to decline by 0.9 pct and 2.0 pct, respectively. By type, it has been disclosed that the performance of state-owned enterprises in annual reports is relatively steady, and agricultural and commercial banks are definitely leading the growth rate.
The growth of deposits and loans has slowed, and credit investment by state-owned banks is relatively resilient.
As of the end of '23, the year-on-year growth rate of interest-bearing assets of listed banks in annual reports was 0.4 pct higher than 23q3. The year-on-year growth rates of total loans, investment assets, and interbank assets changed by -0.3 pct, -0.9 pct, and 8.7 pct, respectively. State-owned bank loans grew by nearly 13% year on year, and resilience was relatively good. The year-on-year growth rate of interest-bearing debt decreased slightly by 0.1 pct compared to 23q3, and the year-on-year growth rates of total deposits, bonds payable, and interbank debt changed by -1.6 pct, -2.3 pct, and 8.3 pct, respectively. Deposit growth has slowed due to factors such as the weakening rate of loan disbursements, high basic effects in the same period in '22, reduction in deposit interest rates, or influence on residents' allocation preferences. The share of personal time deposits increased by 1.3 pct, and the trend of fixed-term deposits continues.
Net interest spreads continued to decline, and debt costs for most listed banks have been declining steadily.
The bank estimates that the net interest spread for 23 of the listed banks in the disclosed annual report was 1.63%, which continued to decline by 3.7 bps from 23q3. Most banks experienced quarterly declines of less than 5 bp. On the asset side, compared to 23H1, loan yields from various banks generally still declined by more than 10 bp, and the decline in personal loans was relatively large. On the debt side, the deposit cost ratio of most listed banks is 1-4bps lower than 23h1. Along with the repricing of maturing deposits and the strengthening of debt structure management, it is expected that the improvement in debt costs will continue to show.
Asset quality is generally stable, and the retail sector is under relative pressure.
By the end of '23, the non-performing rate of listed banks in their annual reports was 1.27%, a slight decrease of 0.7 bps from 23q3. However, the retail loan non-performing rate has generally risen, and the pressure on stock banks and urban agricultural commercial banks is relatively high. The attention rate and overdue rate of individual listed banks increased markedly compared to 23Q3, so we need to pay attention to subsequent risk trends. According to estimates, the net bad generation rate increased by 3.2 bp compared to 23H1. The net bad generation rate of stock banks was high, and the marginal increase in urban and agricultural commercial banks was quite obvious. The credit cost ratio decreased by 10.8 bp to 0.74% from 23q3, and the provision coverage rate decreased by 2.1 pct to 241.9% compared to 23q3, but the profit margin for backfeeding is still sufficient.
The growth rate of risk-weighted assets has slowed, and capital adequacy ratios have improved marginally.
By the end of '23, the risk-weighted asset growth rate of listed banks in annual reports had declined by 0.9 pct to 10.3% compared to 23q3, compounded by a further increase in the fourth quarter. The capital adequacy ratio, Tier 1 capital adequacy ratio, and core Tier 1 capital adequacy ratio were 16.6%, 13.2%, and 11.5% respectively, up 0.4 pct, 0.3 pct, and 0.2 pct respectively from 23q3. The capital adequacy ratio of various types of listed banks that have disclosed annual reports has improved by 0.1-0.4 pct at all levels. The core Tier 1 capital adequacy ratio of individual stock banks and urban commercial banks is less than 100 bps away from the bottom line of supervision, which may add to the pressure.
Investment advice and investment targets
Bank operating fundamentals are expected to bottom out in 2024. Focus on the strength of banking sector risk settlement after confirmation, the inflection point of interest rates on new loans, and the bottoming of bank interest spreads after debt costs fall across all sectors of society. Currently, the monetary and credit environment is friendly, and finance is also expected to rely on forward efforts to stabilize economic expectations, and continue to be optimistic about bank stock performance.
Three main lines are recommended at this stage:
1) Economic growth is still under pressure, and high-dividend state-owned banks in the context of declining expected returns are recommended to focus on Agricultural Bank (601288.SH), Industrial and Commercial Bank (601398.SH), and Bank of Communications (601328.SH);
2) In the context of a major economic province “leading the way”, urban commercial banks with regional alpha advantages and strong fundamental certainty focus on recommending Bank of Jiangsu (600919.SH). It is recommended to focus on Bank of Suzhou (002966.SZ), Bank of Hangzhou (600926.SH), and Bank of Chengdu (601838.SH).
3) Urban agricultural commercial banks, which have reversed their difficult situation and are characterized by low valuations and high dividends, focus on Bank of Nanjing (601009.SH). It is recommended to focus on Chongqing Agricultural Commercial Bank (601077.SH) and Bank of Beijing (601169.SH).
Risk warning: Monetary policy tightened beyond expectations; fiscal policy fell short of expectations; risks spread in key areas such as real estate.