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China's banking sector - Banking sector updates and outlook

作者: Felix LUO,Allen Feng
时间: 2019年02月12日
重要性: 一般报告
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摘要: Report title:China's banking sector - Banking sector updates and outlook
Analyst:Felix LUO,Allen Feng
Report type:Industry
Date:20190212
[Summary]

China’s banking sector
Banking sector updates and outlook

■ Bank loans may speed up partly on downside rate expectations
■ NIM and loan quality a short-to-medium term concern
■ Maintain NEUTRAL, Top Pick ABC (1288 HK)

Bank loans may speed up in 1Q19
We expect higher-than-expected loan growth in January and 1Q19, given: 1) Against the background of interest rate downside expectations, banks may choose to grant loans upfront to increase near-term profitability; 2) The executive meeting of the State Council reiterated that commercial banks whose capital is replenished already should increase their lending support for private, small and micro enterprises. On the other hand, the State Council also stated to support capital replenishment through multiple channels for banks (e.g. to improve the efficiency of approval of perpetual bonds). Banks will be able to grant more loans with enhanced capital adequacy in longer term.

NIM and loan quality a short-to-medium term concern
Despite loans may speed up, NIM and loan quality are under pressure for banks in the short-to-medium term. First, the bill financing interest rate out of the weighted average lending rate already showed signs of decline. This decline may conduce to the decline of general loan interest rate and personal residential mortgage rate and consequently the decline of the weighted average lending rate. Second, the growth rate of revenue from principal business of industrial enterprises (which has a strong negative correlation with the trends of non-performing loan formation ratio of banks) continues decreasing as shown by recent data. This trend demonstrates that banks’ asset quality is still under pressure in the short-to-medium term.

Sector recommendation
China’s banking sector is currently trading at ~0.58x 2019E P/B ratio, not demanding. Maintain “NEUTRAL” rating for the sector given the concerns on NIM and loan quality. Top pick is ABC (1288 HK, BUY) on its low funding costs, relatively low NPL formation ratios in recent periods, and its relatively high allowance to NPL ratio. The PBOC and CBIRC issued the "Guiding Opinions on Financial Services Supporting Rural Revitalization". It stated that monetary policy support will be increased to assist rural revitalization, requiring ABC to actively implement internet financial services and to improve the coverage and credit penetration of rural financial services, which is in-line with ABC’s strategy in county business. TP for ABC is HK$4.5, or 0.77x 19E P/B, or 6.4x 19E P/E. Key catalyst: better-than-expected asset quality; Key downside risks: a macroeconomic downturn and worse-then-expected asset quality.

全文: CMS(HK) Research - China's banking sector - Banking sector updates and outlook [NEUTRAL] ~ Felix LUO,Allen Feng.pdf
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