According to the research report released by Kaiyuan Securities, the impact of real estate business on listed banks will gradually weaken from 2021. Special attention is paid to the slowdown of the impact of impairment losses on public real estate loans on profits in 2023, which may reflect the bank's proactive exposure to risks in the previous period, alleviating the current stage of asset quality pressure. At present, the real estate business of listed banks is characterized by: the proportion of real estate business scale in total assets is still high; mortgage income is still the main source of loan interest income; impairment losses on public real estate loans still drag down profits. In addition, the policies of the central bank and the Financial Regulatory Commission also support nationwide commercial banks to issue operation property loans within this year to replace existing debts, thus improving the cash flow pressure of real estate companies, so the overall risk is controllable.
National banks that will benefit from improving stock bad debts of real estate and still have improvement space in the future include Agricultural Bank of China (601288.SH) and CM Bank (600036.SH); special attention should be paid to urban and rural banks with small loan exposures backed by real estate, including Bank of Jiangsu (600919.SH), Bank of Chengdu (601838.SH), Wuxi Rural Commercial Bank (600908.SH) and Jiangsu Jiangyin Rural Commercial Bank (002807.SZ).
The major viewpoints of Open source Securities are as follows:
Evaluate the risks of listed banks' real estate business from multiple perspectives.
In the environment of continuous fluctuation of real estate prices and changes in market supply and demand, investors are worried about the rise of risks of banks' real estate business. From the perspective of scale, profitability and risk, it is observed that the impact of real estate business on listed banks will gradually weaken from 2021, with special attention paid to the slowdown of the impact of impairment losses on public real estate loans on profits in 2023, which may reflect the bank's proactive exposure to risks in the previous period, alleviating the current stage of asset quality pressure.
Kaiyuan Securities believes that through the assessment of operation property loans and individual operation loans with real estate as collateral, the risk of the former is generally controllable, while the latter has hidden risks, and the risk of stock business is concentrated in urban and rural commercial banks. This is also verified by the information implicitly contained in the expected credit loss model. The calculated results show that in the pessimistic scenario, the expected increase in non-performing loan ratio of urban and rural commercial banks is the highest among all types of banks, which is in line with the view that the risk of individual operation loans is concentrated in urban and rural commercial banks.
The impact of the real estate business on listed banks is weakening year by year.
At present, the real estate business of listed banks is characterized by: firstly, the proportion of real estate business scale in total assets is still high. According to the calculations of Kaiyuan Securities, the proportion of real estate business scale of listed banks at the end of 2023 is about 21% of total assets, which is 3.7 percentage points lower than that in 2021, of which real estate loans (public + mortgage + other loans collateralized by real estate) account for about 33% of total loans, down 4.8 percentage points from 2021; secondly, mortgage income is still the main source of loan interest income. It is estimated that the proportion of mortgage interest income to loan interest income is about 26% in 2023, down 5.6 percentage points from 2021, while the proportion and decline of interest income of public real estate loans are limited; thirdly, impairment losses on public real estate loans still drag down profits. Through the data of 27 sample banks, it is estimated that impairment losses on public real estate loans in 2023 will drag down profits by about 0.69% to 0.94%, but the drag-down rate has slowed significantly compared with the previous period. The above calculation results reflect that the impact of the real estate business on listed banks is gradually weakening year by year.
The hidden risks of individual operation loans of urban and rural commercial banks cannot be ignored. Individual operation loans have short terms, low interest rates, and customers have a higher motivation to use them to refinance mortgages. When housing prices decline, the value of collateral falls, resulting in a refinancing gap, and shorter refinancing cycles make customers face greater financial pressure. Although residents' replacement behavior may slow down within 2024, the stock business of urban and rural commercial banks still has hidden risks. If the operation loans concentrated in 2019 and 2020 expire and 10%, 20%, and 30% of these loans respectively become bad debts, the static increase in non-performing loan ratio of urban and rural commercial banks is estimated to be 0.55% to 1.65%.
The risk of operation property loans is generally controllable. Operation property loans cover a wide range, considering vacancy rate and rent factors, the risk of office buildings may be higher than that of retail super. But the probability of a significant decline in property valuation is relatively small. When the current property price falls by about 46%, it has reached the upper limit of 70% mortgage ratio. In addition, policies of the central bank and the Financial Regulatory Commission also support nationwide commercial banks to issue operation property loans within this year to replace existing debts, thus improving the cash flow pressure of real estate companies, so the overall risk is controllable.
The hidden risks of individual operation loans of urban and rural commercial banks cannot be ignored. Individual operation loans have short terms, low interest rates, and customers have a higher motivation to use them to refinance mortgages. When housing prices decline, the value of collateral falls, resulting in a refinancing gap, and shorter refinancing cycles make customers face greater financial pressure. Although residents' replacement behavior may slow down within 2024, the stock business of urban and rural commercial banks still has hidden risks. If the operation loans concentrated in 2019 and 2020 expire and 10%, 20%, and 30% of these loans respectively become bad debts, the static increase in non-performing loan ratio of urban and rural commercial banks is estimated to be 0.55% to 1.65%.
Risk Warning: Deviation from actual results may occur when calculating data and due to macroeconomic downturn, housing prices may fall more than expected.