CICC's report states that assuming a 20 basis point reduction in 1-year and 5-year LPR, with an average 50 basis point reduction in existing mortgage rates, the impact on interest spreads is estimated to be 9 and 6 basis points respectively, totaling approximately 15 basis points. According to the People's Bank of China's calculations, the overall interest rate adjustment this time is neutral for banks' interest spreads. The bank's calculation assumes that a 25 basis point reduction in deposit rates and a 50 basis point reserve requirement ratio cut can basically offset the impact on banks' interest spreads. The bank believes this offset is mainly considered necessary to maintain banks' reasonable interest spreads and profits for financial system stability.
CICC believes that the expected reduction in mortgage rates this time is expected to reduce borrowers' burden. The simultaneous relaxation of purchase restrictions in first-tier cities, the delay in the implementation of financial policies, the lowering of the minimum down payment ratio nationwide are all aimed at promoting the stabilization of the real estate market. Meanwhile, the subsequent reduction in deposit rates, while supporting the real economy and the capital markets, fully considers the impact on banks' interest spreads and asset quality, helping to achieve a symbiotic relationship between sound bank operations and the real economy prosperity.
The bank suggests selecting banks with higher dividends and stable asset quality, including Agricultural Bank of China (01288.HK), China Construction Bank (00939.HK), Industrial and Commercial Bank of China (01398.HK), China Merchants Bank (03968.HK), HSBC Holdings (00005.HK), Bank of Jiangsu (600919.SH), and Chongqing Rural Commercial Bank (601077.SH); currently, AH premiums are high, and there is room for narrowing premium in Hong Kong banks under the expectation of dividend tax adjustments; with the expectation of economic improvement, China Merchants Bank and Bank of Ningbo (002142.SZ) are more flexible.
