The Zhitong Finance App learned that GF Securities released a research report saying that in the long run, the bank's valuation level is basically positively correlated with the ROE center, and the contribution of overprovision returns to performance will eventually also be reflected in an increase in valuation. Comparing the bank's current PB-ROE with the PB-ROE after the refund, it can be found that banks with high asset quality and high overprovision rates will clearly move lower to the right compared to the current nominal level. The most obvious banks include Bank of Hangzhou (600926.SH), Bank of Chengdu (601838.SH), Changshu Bank (601128.SH), Zhangjiagang Bank (002839.SZ), Bank of Suzhou (002966.SZ), China Merchants Bank (), etc. 600036.SH
According to GF Securities, there are two common measures of banks' ability to cover risk: one is the (loan) provision coverage rate, that is, loan impairment preparation/non-performing loan amount; the second is the loan ratio, that is, loan impairment preparation/total loan amount, but due to factors such as differences in caliber and insufficient comprehensiveness of financial asset classes involved, it may be difficult for the provision coverage rate and loan ratio to reflect the actual provision situation of banks.
How to construct a broad provision coverage index?
The first is to include impairment provisions and defectives for non-credit financial assets. The former will be disclosed in detail in bank statements; the latter can be replaced by the third-stage scale of the corresponding assets; the second is to unify the non-performing loan caliber, and the denominator of the non-performing loan provision ratio can be set as “overdue loans+restructuring loans” or “focus on loans+non-performing loans.” Judging from the results, after the caliber was leveled off, the broad provision coverage rate of banks showed further differentiation, with state-owned banks generally rising steadily; some banks with high risk exposure in the early stages and weak risk offsetting capacity had relatively low broad provision coverage; while the broad provision coverage rate of urban, agricultural and commercial banks in the Jiangsu and Zhejiang regions with stable asset quality and consolidated risk offsetting capacity was clearly high.
How to calculate full caliber excess provision?
According to the requirements of the “Administrative Measures on the Accrual of Financial Enterprise Reserves”, under standard law, the estimated potential risk of loans = 1.5% of normal risk assets* 1.5% +risk assets of concern * 3% +secondary risk assets* 30% +doubtful risk assets* 60% +loss risk assets* 100%. At the same time, non-credit assets refer to the 150% provision coverage supervision level. According to the calculation results of GF Securities, at the end of 2023H1, the credit asset overprovision rate in the statements of listed banks was about 131.69%. Among them, agricultural and commercial banks had the highest average excess provision rate. The internal fragmentation rate of urban commercial banks in economically developed regions was significantly higher, and the overprovision rate of China stock banks was lower than that of regional banks, which was stable overall.
Over-provision dial-back PB and ROE estimates
Currently, listed banks with relatively stable asset quality generally retain certain excess provisions. If these excess provisions are gradually released in the future, it is expected to provide effective support for the performance growth of listed banks. Assuming that the tax rate is 25%, and the dividend rate is consistent with '22. Using the closing price on January 19, 2024 as a benchmark, it is possible to estimate the PB level after the overprovision is restored; at the same time, assuming that the current excess provision is released in a balanced manner over the next 3, 5, and 10 years, respectively, it is possible to estimate the implied ROE level after the current refund.
Risk warning: (1) economic growth has declined beyond expectations; (2) fiscal policy has fallen short of expectations; (3) international economic and financial risks have exceeded expectations; (4) policy regulation has exceeded expectations.