According to the Securities Times app, China Galaxy Securities released a research report stating that in Q3 2024, the revenue of listed banks increased by 0.89% year-on-year; net profit attributable to shareholders increased by 3.53% year-on-year, showing improvement compared to the previous quarter. The marginal recovery of listed banks' performance is mainly due to the narrowing gap in net interest income and non-interest income primarily from investment returns, which continue to be the main support for revenue. The pressure from loan loss provisions is relatively low, and the reduction in impairment losses continues to drive profit growth, with the profit-to-loan loss provision effect slightly weakening compared to the first half of the year. Looking ahead, under the turning point of policies, banks have accumulated positive fundamental factors; performance recovery and capital replenishment continue to support the dividend nature of banks.

China Galaxy Securities' main points are as follows:

Revenue and profit both achieved positive growth in a single quarter.

From January to September 2024, the operating income of listed banks decreased by 1.05% year-on-year; pre-provision profit decreased by 2.12% year-on-year; net profit attributable to shareholders increased by 1.43% year-on-year; ROE was 11.22%, a decrease of 0.74 percentage points year-on-year. In Q3 2024, the revenue of listed banks increased by 0.89% year-on-year; net profit attributable to shareholders increased by 3.53% year-on-year, showing improvement compared to the previous quarter. The marginal recovery of listed banks' performance is mainly due to the narrowing gap in net interest income and non-interest income primarily from investment returns, which continue to be the main support for revenue. The pressure from loan loss provisions is relatively low, and the reduction in impairment losses continues to drive profit growth, with the profit-to-loan loss provision effect slightly weakening. In Q3 2024, pre-provision profit increased by 0.39% year-on-year. Looking at specific sectors, city commercial banks as a whole continue to perform well, with state-owned banks showing more significant performance improvement.

The narrowing gap in interest rate spreads, optimization of liability costs showing effects, and the halting of 'manual interest supplementation' are reducing pressures.

From January to September 2024, the net interest income of listed banks decreased by 3.19% year-on-year, mainly due to the impact of slowing scale expansion and continued decline in asset yields; at the same time, efforts to optimize liability costs have not diminished, resulting in a narrower decrease in net interest income compared to the first half of the year. The net interest spread continues to be affected by the downward pressure on asset yields, while the effectiveness of optimizing liability costs is further realized, providing some support to interest rate spreads. From January to September 2024, the net interest margin of listed banks was 1.57%, a decrease of 19 basis points from the previous year, showing a narrower decline compared to the same period last year.

Looking ahead, the implementation of a package of incremental policies such as reserve requirement ratio cuts, interest rate cuts, lowering existing home loan rates, and deposit rate ceiling will continue to put downward pressure on bank interest spreads in the short term, with long-term prospects of gradual stabilization. The expansion of balance sheet size is slowing down, the halt of "manual interest supplementation" is gradually being absorbed, and as of September, loans and deposits have not grown compared to the previous year, with increases of 6.98% and 4.13% respectively; the month-on-month deposit growth rate of state-owned banks has improved compared to the previous quarter.

The narrowing decline in net interest income continues, with persistent growth in non-interest income.

From January to September 2024, the year-on-year growth of non-interest income of listed banks increased by 5.2%, with a higher growth rate compared to the first half of the year, mainly benefiting from the continued growth of other non-interest income. Intermediary business income decreased by 10.75% year-on-year, expected to be affected by the policy of merging commercial banks and reducing fund fees, but the decline is narrower compared to the first half of the year. Other non-interest income increased by 25.61% year-on-year. Among them, investment income increased by 23.89%, with a slightly slower growth rate but still at a relatively high level; at the same time, the fair value change income and exchange gain of state-owned banks also showed significant improvement.

Overall asset quality remains stable, with a focus on the core Tier 1 capital replenishment of large state-owned banks.

As of September 2024, the non-performing loan ratio of listed banks was 1.17%, unchanged from the previous quarter and the previous year; the provision coverage ratio was 302.14%, a decrease of 7.34 percentage points from the previous year. Overall asset quality remains stable, with sufficient risk coverage. In September, the core Tier 1 capital adequacy ratio of listed banks was 10.53%, an increase of 27 basis points from the previous year; among them, state-owned banks were at 11.9%, and after the national capital increase is implemented, the ability of large state-owned banks to serve the real economy and withstand risks is expected to further strengthen.

Investment recommendation: Banks' revenue and net interest recovery, narrowing decline in interest spreads, gradual optimization of liability costs will benefit from the increase in state-owned capital landing. Fiscal and monetary policies strengthen counter-cyclical adjustments to promote economic recovery. As policy inflection points approach, banks' fundamentals accumulate positive factors. Performance recovery and capital replenishment continue to support the dividend nature of banks. Bullish on the banking sector for allocation value, maintaining a recommended rating.

Stock specific recommendations: Recommend Industrial and Commercial Bank of China (601398.SH), China Construction Bank Corporation (601939.SH), Postal Savings Bank of China (601658.SH), Bank of Jiangsu (600919.SH), Jiangsu Changshu Rural Commercial Bank (601128.SH).

Risk warning: Economic performance below expectations, deterioration in asset quality risk; continued downward pressure on interest rates, NIM compression risk.