Source: Finance Federation Author: Gao Ping

Institutions' enthusiasm for research on listed banks has not diminished. Wind statistics show that as of publication, a total of 15 A-share banks had been investigated by institutions in September. Compared with the 5 banks last month (the month the regular report was disclosed), the number of banks surveyed in September increased markedly. Among them, Bank of Ningbo and Ruifeng Bank have all been favored by over 50 institutions, attracting the attention of many institutions such as brokerage firms and funds.

Judging from the issues that institutions are concerned about, the quality of assets, the impact of lower interest rates on stock mortgages on interest spreads, and the real estate loan business are the focus of institutional attention. Banking brokerage analysts pointed out that with the continuous optimization of real estate policies and the continuous advancement of CIT-related bonds, the hidden asset quality of listed banks is expected to gradually be eliminated, and bank valuations are expected to enter an upward channel.

Intensive institutional research on bank stocks, Bank of Ningbo was favored by over 150 institutions

According to Wind data, institutions prefer urban agricultural commercial banks in Jiangsu and Zhejiang, and the number of companies that received institutional research in September belonged to the Jiangsu and Zhejiang regions. Among them, the Bank of Ningbo received the largest number of institutional surveys, reaching 151 companies. Ruifeng Bank was followed by 52 institutions for research in September; Bank of Suzhou attracted 23 institutions to conduct research. Among the banks that received institutional research in September, in addition to the banks mentioned above, banks in the Jiangsu and Zhejiang regions also include Sunong Bank, Bank of Hangzhou, and Bank of Jiangyin.

Judging from the number of surveys, Ruifeng Bank received the most attention, with a total of 11 surveys; Bank of Suzhou followed, receiving 6 surveys, while Sunong Bank and Bank of Ningbo both received 5 surveys. Qilu Bank, Bank of Xiamen, and Bank of Guiyang received 3, 2, and 2 surveys, respectively.

Judging from the issues of institutional research in September, asset quality, interest spreads, etc. are issues that institutions are more concerned about. Ruifeng Bank, Qilu Bank, etc. have all been asked about asset quality in recent research. For example, institutions ask if Ruifeng Bank's non-performing loan ratio declined significantly in the first half of 2023, and there is still room for further optimization of asset quality in the future.

The trend of net interest spreads is still receiving a high level of attention. Many institutions are concerned about the pressure on bank interest spreads, and the impact of lower interest rates on stock mortgages on interest spreads. For example, when an institution researched the Bank of Xiamen asked what is the bank's current net interest spread and net interest spread, what are the reasons for the decline, and what measures to improve it in the future. According to the data, as of the end of June 2023, the bank's net interest spreads and net interest spreads were 1.28% and 1.34% respectively, down 0.14 percentage points and 0.15 percentage points from the previous year, respectively. Also, how will lower interest rates on stock mortgages affect bank interest spreads? In their research with Ruifeng Bank, institutions also asked how much impact the policy of lowering interest rates on the first housing loan stock would have on interest spreads.

Multiple factors help restore banking fundamentals and the industry is optimistic about the allocation value of the banking sector

In August 2023, the value added of industries above scale increased by 4.5% year on year, up from July. Social finance was added in August by 3.13 trillion yuan, higher than the expected value of 2.46 trillion yuan, an increase of 657.6 billion yuan over the previous year, and a significant recovery from May-July. Zhang Yiwei, an analyst at Galaxy Securities, said that economic data has stabilized, policy level continues to gain strength and steady growth, and accelerated issuance of government bonds is expected to drive infrastructure investment growth and leverage demand for supporting financing. At the same time, the downgrade was implemented, combined with another reduction in deposit listing interest rates, to help hedge against the liquidity gap and the impact of lower stock mortgage interest rates, protect banks' interest spreads and profits, and help banks restore their fundamentals. We continue to pay attention to the relaxation of real estate policies, the effectiveness of fiscal development, and progress in mitigating local debt risks, and are optimistic about the allocation value of the banking sector.

“With the continuous optimization of real estate policies and the continuous advancement of CIT-related bonds, it is expected that hidden asset quality of listed banks will gradually be eliminated, and bank valuations are expected to enter an upward channel. In terms of individual stocks, we recommend banks with low valuations and high dividends, and banks that were affected by related risks and had a lot of valuation pullbacks in the early stages.” According to an analyst at Guolian Securities.

Looking forward to the future, Dongguan Securities and Banking Industry Analysts believe that the factors that suppress valuations in the banking sector are expected to gradually disappear. First, the Political Bureau of the Central Committee sent a strong signal of steady growth. The conference pointed out that it will continue to implement a prudent monetary policy and actively expand domestic demand. A recovery in consumption is conducive to building a solid foundation for a steady recovery in the economy, and that the boom in the banking sector is expected to pick up. Second, the conference also emphasized the need to adjust and optimize real estate policies in a timely manner to effectively prevent and resolve local debt risks, which is conducive to alleviating market concerns about the quality of bank assets.

Also, in the context of the China Special Assessment, indicators such as ROE and operating cash ratio have been added to the central enterprise assessment. The banking sector has stable fundamentals, high dividends, low valuations, and a high margin of safety. As the economy stabilizes and recovers, the quality and efficiency of operations is expected to improve. In the medium to long term, ROE has the potential to continue to rise, and there is plenty of room for valuation restructuring.

edit/lambor