The Zhitong Finance App learned that Wanlian Securities released a research report indicating that from a long-term perspective, the banking industry's overall profit growth may have entered the bottom range, and profit stability will gradually be reflected. Also, from the perspective of dividends, an increase in the dividend rate is conducive to an increase in bank stock valuations. However, due to cost-limited endogenous supplementation of the bank's own business model, it meets regulatory requirements for sufficient capital and promotes future business and scale expansion. Consider the current dividend rate and valuation level of bank stocks in a comprehensive manner. Short-term sector defensive properties are still quite obvious. The subsequent gradual recovery of the economy and improvement in credit risk may bring about a new round of market catalysis.

Since the end of 2023, in the process of continuous adjustment of the macro environment and corporate profit forecasts, high dividend strategies have received continuous attention from the market. Among them, the decline in long-term interest rates is an important factor driving the price performance of high-dividend assets. Higher dividend rates and extremely low valuations of bank stocks have become the preferred capital, compounded by rising demand for market defense, boosting the market performance of the entire banking sector. Looking back, in high dividend strategies, support factors on the denominator side may have responded a lot, and stability on the molecular side has become the key logic for high-dividend stock selection.

The main views of Wanlian Securities are as follows:

Industry operations continue to be under pressure

Judging from the overall data of the 21 banks that have already disclosed their full annual results reports for 2023, the overall operation of the industry continues to be under pressure. Revenue growth for the full year of 2024 slowed to -0.89%, down 0.04 percentage points from the third quarter. Net profit to mother grew by 1.6%, down 1 percentage point from the third quarter. In 2023, the positive contribution on the revenue side of the banking sector was mainly higher scale expansion and growth in investment income at a low base, while net interest spreads and middle income are still weakening. The reasons for the positive increase in net profit to the mother in 2023: first, the higher scale growth rate on the revenue side and the growth of other non-interest income; second, on the cost side, the decline in asset impairment losses, credit cost savings, and tax exemptions and low-tax asset investments led to a decrease in income tax rates.

Broad-spectrum interest rates have remained downward as a whole, and exchange rate constraints still exist

Expectations of the Federal Reserve's interest rate cut in early 2024 continued to ferment, and interest rates on ten-year US Treasury bonds fell as low as 3.79%. Currently, the US federal funds rate target range is 5.25% to 5.5%. Wanlian Securities anticipates that changes in the Fed's policy direction will be more affected by macroeconomic growth and potential financial risks, and tolerance for inflation may increase. In the future, when the US economy does not weaken significantly, there is limited room for further decline in long-term interest rates. Judging from this aspect, there may be limited room for future domestic policy interest rate adjustments. In the future, we still need to focus on the implementation of the steady growth policy. In the short term, it may be difficult for social financing demand to pick up significantly, and interest rates on physical financing will maintain a downward trend.

The changing trend in asset quality affects the resilience of profit growth

The increase in net profit to mother in 2023 was due more to a decline in the strength of the provision plan. The average credit cost ratio fell to 0.74% in 2023, down 17 BPs from 2022. The current provision coverage rate is 283.31%, down 2.1 percentage points from 2022. From the perspective of bad regeneration, there was a month-on-month decline in 2023 compared to 2022, and write-off efforts also declined compared to 2022.

However, judging from the share of concerned loans and overdue rate data, banks' asset quality is still likely to weaken marginally, or affect the decline in credit cost ratios, causing profit growth to slow down accordingly. However, from the perspective of overall provision coverage, it is unlikely that profit growth will slow down. It is still necessary to observe changes in asset quality in the future.

Risk factors: The macroeconomic downturn, corporate solvency has declined beyond expectations, which has had a great impact on banks' asset quality; loose monetary policies have a negative impact on banks' net interest spreads; continued tightening of regulatory policies will also have a certain impact on the industry, etc.