The Zhitong Finance App learned that Shen Wan Hongyuan released a research report saying that the first quarterly report was the fulfillment of expectations to the bottom of performance. The period of greatest pressure on banking performance throughout the year was also the first half of the year. High dividend returns with stable profits and stable dividends in the banking sector are still the focus of short-term market capital. At the same time, attention should be paid to internal sector rotation and focus on high-quality urban agricultural commercial banks whose valuations are close to the average level of the sector. In terms of individual stocks, grasp the two main lines of “high-quality growth” and “steady dividends”.
Recommended targets: 1) High quality regional banks with better performance than peers, Bank of Suzhou (002966.SZ), Bank of Sunong (603323.SH), Bank of Changshu (601128.SH), and Ruifeng Bank (601528.SH); 2) Static high dividend products with stable dividends can continue to be held, with emphasis on recommending Industrial Bank (), including Shanghai Agricultural Commercial Bank (USD), major state-owned banks, etc. 601166.SH 601825.SH
Shen Wan Hongyuan's main views are as follows:
In line with expectations, the results of smoothing the pace of credit investment have been shown. The loan growth rate has stopped rising this year, highlighting the main trend of stability.
The growth rate of 1q24 listed bank loans slowed by nearly 1 pct to 10.2% compared to the end of 2023. Assuming that the credit growth rate in 2024 remains flat year on year, the share of 1Q24 increases for the whole year is basically the same as the average of 2019-2023 (about 44%), and the credit growth rate will generally stabilize about 10% throughout the year. Specifically, the credit slowdown in the first quarter was mainly reflected in state-owned banks (down 1.3 pct to 11.6%) and stock banks (further deceleration to 5%). Weak demand and risk mitigation effects were also related to active investment contraction. Urban agricultural commercial banks are relatively leading the way. Credit growth in Chengdu, Ningbo, Suzhou, Jiangsu, Hangzhou, Sunong, and Changshu far exceeds the industry average.
From a structural point of view, the public sector continued to maintain a high boom around the “Five Big Articles”, while actively reducing bill pressure to optimize the structure; the retail side recovered weakly. Despite a month-on-month increase in incremental growth, the absolute level was still lower than the same period in 2019-2022, mainly affected by early loan repayment and more prudent retail sales due to the exposure of long-term risk margins.
Slightly better than expected: the estimated interest spread was only slightly reduced by 1 bps month-on-month, and the improvement in debt costs was the main contribution.
Considering the high and low interest spread base last year, the year-on-year narrowing of interest spreads this year is expected to reduce the drag on revenue from quarter to quarter. The 1q24 interest spread fell only 1 bp to 1.64% from quarter to quarter. It is estimated that the interest-paying debt cost ratio fell by 5 bps from quarter to quarter to hedge against the downward impact of asset pricing. Asset pricing has clearly rebounded in the short term. Reducing deposit costs is a more manageable measure to stabilize interest spreads this year (affected by pressure to reduce high-cost long-term deposits, the 1q24 industry deposit growth rate has slowed by more than 3 pct, more than loans). Banks that repriced long-term deposits account for a higher proportion of this year (mainly agricultural and commercial enterprises in Jiangsu and Zhejiang), and interest spreads may perform better than peers.
Furthermore, although asset-side pricing continues to decline, the magnitude tends to converge. Objectively speaking, along with the slowdown in scale growth, the strategy of simply relying on “volume compensation → revenue boosting” will tend to weaken in the past. Compared with passively digesting and cutting interest rates, the asset side focused more on entities, steady credit growth, and flexible asset structures to achieve “stable volume growth and price growth”, and their interest spreads were more competitive.
What was relatively lower than expected was the change in provisions. Although asset quality is generally stable, due to new regulatory requirements and increased write-offs by some banks, many banks showed varying degrees of decline in provision coverage.
The non-performing rate of 1q24 listed banks fell 1 bp to 1.25% from quarter to quarter, and the bad generation rate after annualization plus write-off and recycling fell 9 bps to 0.58% from quarter to quarter, but it was 1 bps higher than the average for the full year of 2023. The provision coverage rate of listed banks remained flat at 245% in the first quarter, but the high provision coverage rate of many banks fell by more than 20 pct. On the one hand, it is related to the new financial asset risk classification regulations (some financial assets need to be reclassified according to whether they are overdue, etc., and provisions need to be adjusted according to the requirements of the new regulations. The decline in provision coverage had a greater impact on banks that have previously determined more stringent and more adequate accounting). On the other hand, it is also related to the relationship between balancing back profit and planning reserves, and the reduction of “reserve reservoirs” on the molecular side.
Overall, if the bank's provision base is strong enough, and bad indicators remain low when there is relatively little use of write-off, the asset quality of such banks will continue to be better than those of their peers, which can also give steady performance growth expectations.
Risk warning: Physical demand is weak, and the pace of economic recovery is lower than expected; interest spreads have stabilized less than expected; risk disturbances in some housing enterprises and risk exposure for long-tail customers have exceeded expectations.