20211221-招银国际-China_Banking_Sector__Implications_of_5_bps_cut_on_1-yr_LPR_3页_501kb

CMB International Securities | Equity Research | Sector Update Summary

Core Content

This document provides an equity research update on the China Banking Sector, focusing on the implications of a 5 bps cut in the 1-year LPR (Loan Prime Rate) on 1 December 2021. The analysis highlights the limited impact of this rate cut on bank earnings and evaluates the sector's valuation and investment potential.

Main Points

• Sector Outlook: The banking sector is expected to outperform the broader market. The primary re-rating driver remains the expectation of improved asset quality.
• LPR Cut Impact:
  • The 1-year LPR was cut by 5 bps to 3.80%, while the 5-year LPR remained unchanged at 4.65%.
  • The unchanged 5-year LPR reflects the PBOC's stance on avoiding speculation in the residential property market (房住不炒).
  • The rate cut is intended to reduce borrowing costs for businesses and individuals, especially SMEs.
• Earnings Impact:
  • The 1-year LPR cut is expected to impact ~130.44 billion RMB of loans.
  • Net interest income (NII) for 2022 is projected to drop by 22 billion RMB, or 0.7% of pre-tax profits.
  • In the long term, NII could drop by 65 billion RMB, or 2.2% of pre-tax profits.
  • The combined effect of RRR and LPR cuts results in a net decline of 7 billion RMB in NII, or 0.24% of total pre-tax profits.
• Valuation and Key Risks:
  • Banks are currently trading at historical lows, with P/B ratios below 1x.
  • Postal Bank (1658 HK) is highlighted as the top pick with a target price of HK$7.20, implying 0.86x P/B for 2021E and 0.79x P/B for 2022E.
  • PSBC (H) is trading at 0.62x P/B, which is below the historical mean of 0.64x.
  • Most of the negative sentiment is already priced in, making the sector attractive for investors with a long-term perspective.

Key Information

• LPR Cut Context:
  • The 5 bps cut is the first since April 2020.
  • It follows a RRR cut of 50 bps, which released 1.2 trillion RMB in long-term funds.
• Loan Impact:
  • Total loan in China is estimated at 191,558 billion RMB.
  • Mortgage accounts for 38,100 billion RMB, and other loans for 153,458 billion RMB.
  • 130,440 billion RMB of loans are estimated to be affected by the 1-year LPR cut.
• NII Impact Estimates:
  • 2022 NII change: -22 billion RMB.
  • Long-term NII change: -65 billion RMB.
  • 2022 NII change as % of pre-tax profit: -0.7%.
  • Long-term NII change as % of pre-tax profit: -2.2%.

Investment Recommendations

Analysts

• Eric Wang – (852) 3900 0892 – ericwang@cmbi.com.hk
• Gigi Chen, CFA – (852) 3916 3739 – gigichen@cmbi.com.hk

Disclaimer

• The report is not investment advice and does not guarantee returns.
• Past performance does not indicate future results.
• Investors are advised to consult financial advisors before making decisions.
• The analyst has no direct financial interest in the stocks discussed.
• CMBIS may have conflicts of interest due to investment banking relationships with the issuers.

Sector Rating

• OUTPERFORM: The banking sector is expected to outperform the market over the next 12 months.

Additional Notes

• The document includes charts and tables for visual representation of LPR changes, market lending rates, and NII impacts.
• It is important to note the regulatory disclosures and distribution restrictions for different regions (UK, US, Singapore).