The Zhitong Finance App learned that Huafu Securities released a research report saying that the scale of social finance continued to decline year-on-year in March under a high base. The bank said that at the beginning of the year, many business entities had a “good start” demand. Coupled with successive policy efforts, including the introduction of a rental housing loan support plan at the beginning of the year and the central bank's restart of PSL, etc., it provided some support for the increase in social finance in the first quarter. Subsequent government bonds issued in the fourth quarter of last year will also be gradually disbursed to projects, which is expected to boost demand for supporting financing. As fiscal policies “improve quality and efficiency,” credit demand from major state-owned banks that participate extensively in state-owned projects is expected to remain high, and the fundamentals of small and medium-sized banks are expected to be repaired at an accelerated pace.

It is recommended to focus on large banks and small to medium banks in high-quality regions, such as state-owned banks, Changshu Bank (601128.SH), Bank of Changsha (601577.SH), and Minsheng Bank (600016.SH).

Huafu Securities's views are as follows:

The scale of social finance continued to decline year over year under a high base.

The scale of social finance in March was 4872.5 billion yuan, a year-on-year decrease of 514.2 billion yuan. In 2018-2022, the scale of social finance in March was in the range of 1.70 to 5.19 trillion yuan. In the first quarter of 2023, due to the combination of factors such as the optimization of epidemic policies and the success of banks, the scale of social finance reached 5.39 trillion yuan in March, thus forming a high base. Under last year's high base, the scale of social finance declined slightly this year, but it is still higher than the scale of social finance in March.

Among them, RMB loans and government bonds are the main drag items. The size of RMB loans in March was 3292.6 billion yuan, a year-on-year decrease of 656.1 billion yuan. This is related to the central bank's request to guide reasonable credit growth and balanced investment. The financing scale of government bonds was 464.2 billion yuan, a year-on-year decrease of 137.3 billion yuan, the second biggest drag. This is related to the overall slow issuance of government bonds.

The corporate sector remains resilient and large.

The scale of corporate loan financing in March was 2340 billion yuan, a year-on-year decrease of 360 billion yuan. Among them, medium- to long-term corporate loans were 1.6 trillion yuan, a year-on-year decrease of 470 billion yuan. This was also mainly affected by the high base. In 2023, medium- and long-term corporate loans were 2070 billion yuan, which greatly exceeded the same period in 2018-2022 (461.5 billion yuan to 1344.8 billion yuan), forming a high base. Despite the year-on-year decline, the size of corporate medium- to long-term loans is also the second-highest since 2018. The PMI data also confirms this. The manufacturing PMI index rebounded to 50.80 in March, an increase of 1.7 percentage points, and economic sentiment rebounded, which led to an increase in financing needs of some enterprises.

Demand from the residential sector remains weak.

The loan volume for residential households in March was 940.6 billion yuan, a year-on-year decrease of 304.1 billion yuan. Among them, the size of medium- to long-term loans to residents was 451.6 billion yuan, a year-on-year decrease of 183.2 billion yuan. Overall, consumer consumption and demand for home purchases are weak. Commercial housing transaction area in 30 large and medium-sized cities fell 45.47% year on year in March. With the gradual implementation of a new round of policies, including large-scale equipment updates, trade-in of consumer goods, and further relaxation of real estate regulation policies in some cities, it is expected to have a certain effect on boosting consumer demand.

Direct financing's drag on social finance decreased month-on-month.

The scale of direct financing in March was 947.7 billion yuan, a year-on-year decrease of 50.9 billion yuan. The drag was reduced month-on-month, mainly due to the acceleration of corporate bond financing. The scale of corporate bond financing in March was 460.8 billion yuan, an increase of 125.1 billion yuan over the previous year. In an environment of low interest rates, the willingness to finance corporate bonds has increased. In contrast, the issuance of government bonds was slow, with a year-on-year decrease of 137.3 billion yuan. It is expected that local bond issuance may accelerate further in the second quarter, special treasury bonds are also expected to begin to be implemented, and the drag on government bonds is also expected to abate.

The micro dynamism of the economy needs to be improved. The M1 year-on-year growth rate fell 0.1 percentage points to 1.10%, and the M2 growth rate fell 0.4 percentage points to 8.30% year-on-year. This may be related to the slowdown in the pace of credit expansion, leading to a weakening of derivative capacity. In the future, enterprises will actively expand production and investment and residents' demand for increased leverage will need to be further increased.

It is recommended to focus on large banks and small to medium banks in high-quality regions.

At the beginning of the year, many business entities had a “good start” demand. Coupled with successive policy developments, including the introduction of a rental housing loan support plan at the beginning of the year and the central bank's restart of PSL, etc., it provided some support for the increase in social finance in the first quarter. Subsequent government bonds issued in the fourth quarter of last year will also be gradually disbursed to projects, which is expected to boost demand for supporting financing. As fiscal policies “improve quality and efficiency,” credit demand from major state-owned banks that participate extensively in state-owned projects is expected to remain high, and the fundamentals of small and medium-sized banks are expected to recover quickly. The bank recommended focusing on large banks and small and medium banks in high-quality regions, such as state-owned banks, Changshu Bank, Bank of Changsha, and Minsheng Bank.

Risk warning: policy progress may fall short of expectations, credit risk exposure