Zhitong Finance APP learned that Huafu Securities released a research report stating that, according to calculations, the 50bp adjustment of existing home loan interest rates this time will have a negative impact of about 6bp on the overall net interest margin of listed banks. From the perspective of net income, if the interest rate on existing home loans is lowered at the end of 2024Q3, it will negatively affect the profit growth of listed banks by around 2 percentage points in 2024. The banking sector has had three driving factors this year: the logic of dividend yield stock selection spreading within the sector, the high dividend strategy spreading from state-owned banks to small and medium-sized banks; relaxation of real estate policies; market expectations of a slowdown in the decline rate of bank net interest margins and anticipation of the fundamentals bottoming out. Looking ahead, the banking sector needs to examine more the effects of previous policies and the future trends of the fundamentals.

Huafu Securities' main points are as follows:

The adjustment of the interest rate on existing home loans has landed, and the policy intensity meets expectations.

This reduction in the interest rate on existing home loans landing will have a certain impact on the net interest margin of banks in the short term. According to calculations by Huafu Securities, the 50bp adjustment of existing home loan interest rates this time will have a negative impact of about 6bp on the overall net interest margin of listed banks. From the perspective of net income, if the interest rate on existing home loans is lowered at the end of 2024Q3, it will negatively affect the profit growth of listed banks by around 2 percentage points in 2024. However, in the long run, the adjustment of existing home loan interest rates is expected to ease the phenomenon of residents repaying their loans early, which is bullish for the credit structure and asset quality of banks.

From the perspective of credit extension, the downward adjustment of existing mortgage rates has narrowed the interest rate differential between existing mortgage loans and newly originated mortgage loans, weakening the motivation for residents to repay early and banks' mortgage loans are expected to stabilize and rebound in scale. Mortgages have long durations and low credit costs, remaining high-quality assets for banks. Holding existing mortgage loans can effectively alleviate the pressure on banks' asset redeployment.

Looking at asset quality, on the one hand, the non-performing loan ratio of mortgage loans is significantly lower than the overall loan non-performing ratio of banks, holding more high-quality mortgage loans is expected to provide some support for banks' asset quality; on the other hand, from the perspective of mortgage loans themselves, there has been a slight increase in banks' mortgage loan non-performing ratio since the beginning of this year. As residential mortgage rates decrease on the demand side, relieving the pressure on residential mortgage repayments, the pressure on the formation of non-performing mortgage loans for banks decreases, and credit costs are expected to marginally decline.

The reserve requirement ratio will be lowered by 0.5 percentage points in the near future.

Lowering the reserve requirement ratio can on one hand free up more liquidity, boost asset deployment by banks. This reduction of the deposit reserve ratio by 0.5 percentage points will provide about 1 trillion yuan of long-term liquidity to the financial market. On the other hand, it can also alleviate the pressure on bank interest spreads. Based on the static calculation of listed banks' data for 2024 H1, this reserve requirement reduction is expected to contribute positively to banks' average interest spreads by around 1 basis point.

Lowering the policy interest rate, with the 7-day reverse repurchase operation rate reduced by 0.2 percentage points.

Huafu Securities predicts that the impact of this interest rate cut on banks' interest margins is limited. From the asset side perspective, the interest rate cut will only affect the pricing of newly originated loans and refinancing loans in the short term, with a more noticeable stimulating effect on loan growth. By 2025, the repricing of assets may have some impact on interest margins, but by then the liability side may have corresponding offsets. Looking at the liability side, there is potential for improvement in bank deposit costs, which may enhance the hedge effect on asset-side interest margin narrowing. Since the beginning of this year, banks have repeatedly lowered deposit rates and started manual interest supplementation and rectification as required by regulators in April, resulting in a significant decline in the cost of bank deposits in the first half of 2024. After this adjustment to the policy interest rate, banks are expected to continue lowering deposit rates and the cost of liabilities is expected to continue to decline steadily.

Investment recommendations: Firstly, it is highly recommended to focus on Shanghai Pudong Development Bank (600000.SH). The bank is currently in a phase of turning around from difficulties, with a close-to-clearing level of non-performing loans, a continuous downward trend in non-performing loan generation rate, marginal improvement in credit costs, and potential release of profit elasticity. Moreover, starting from the fourth quarter of last year, the company has increased its credit deployment efforts, and the strengthened momentum in credit asset deployment is expected to drive an upward trend in revenue growth. Secondly, it is advisable to pay attention to CM Bank (600036.SH), Bank of Jiangsu (600919.SH), and Bank of Chongqing (601963.SH).

Risk warnings: Weak macroeconomic conditions; policy progress falling short of expectations; lower-than-expected credit demand; market style shifts.