CITIC published a report on the outlook for the China Mainland Banking sector this year, expecting stable operation for the industry, with net interest margin pressure likely to decrease (narrowing by about 10 to 15 basis points for the year). Debt disposal work will assist in balance sheet repair (the net non-performing generation rate is stable), and earnings growth for local banks continues to show stability. Looking ahead, a moderately loose monetary policy is anticipated, with symmetric rate cuts expected to be between 40 to 60 basis points, and a 100 basis point margin for reserve requirement cuts.
The bank believes that a high dividend strategy remains the main logic for trading China Mainland Banking stocks in 2025, focusing on the level and certainty of dividend yields, recommending state-owned large banks (A/H shares) and CM BANK (03968.HK)(600036.SH). Attention is drawn to targets located in regions with stable or marginally improving economic expectations, including Chongqing Rural Commercial Bank (601077.SH), Bank Of Ningbo (002142.SZ), and Jiangsu Changshu Rural Commercial Bank (601128.SH), among others.
CITIC expects the H-shares of China Mainland Banks to perform better than A-shares, primarily due to the attractiveness of dividend yields for capital allocation. The effects of incremental policy are manifest, focusing on banks with a higher proportion of market-based funding demand, including CM BANK, Bank Of Ningbo, Ping An Bank (000001.SZ), and Shanghai Pudong Development Bank (600000.SH). The bank notes that factors such as real demand and risk compensation have constrained the credit impulse, and the policy shift from investment to consumer also affects the issuance of medium- to long-term loans. The bank predicts that new social financing in the mainland will reach 33 trillion yuan by 2025, with a balance growth rate of 8%, the proportion of government financing in social financing will increase, and the proportion of credit will continue to decrease, reflecting on the bank's balance sheet. Additionally, new credit loans are mainly directed towards infrastructure and manufacturing exposures, with retail loans also expected to stabilize and recover. The upward risk of social financing growth is primarily due to the unexpected issuance of interest rate bonds.
CITIC believes that local regulatory authorities need to further standardize loan pricing, combat high-interest deposits, and regulate asset management products, substantively enhancing the transmission efficiency of deposit rates, and promoting commercial banks' net interest margin to remain around 1.4%.
The bank indicates that the investment main line for China Mainland Banks in 2025 can consider stocks with stable earnings expectations and dividend ratios, including Industrial And Commercial Bank Of China (01398.HK), China Construction Bank Corporation (00939.HK), Agricultural Bank Of China (01288.HK), Bank Of China (03988.HK), Bank Of Communications (03328.HK), CM BANK, Chongqing Rural Commercial Bank, and Bank Of Jiangsu (600919.SH), among others. Considering that the current premium for state-owned large banks' A-shares and H-shares remains high, the dividend yield for Hong Kong stocks is more attractive. The dividend strategy focuses on the level and certainty of dividend yields, which depend on valuation. When high-dividend stocks see a rapid increase in valuation, the attractiveness of dividends decreases, and the strategy may diffuse to other stocks. Certainty stems from revenue capability and risk control levels, with investors giving higher risk premiums for uncertainty.
The bank maintains a 'outperform the industry' rating for China Construction Bank Corporation (00939.HK), Agricultural Bank Of China (01288.HK), and Industrial And Commercial Bank Of China (01398.HK), with each given a target price of 8.91 yuan, 5.09 yuan, and 7.11 yuan respectively.