20220919-招银国际-China_Financials_Weekly_CPIC_agency_FYP_growth_picked_up_in_Jul-Aug_26页_1mb

China Financials Weekly Summary

Core Content

This report provides an analysis of the performance of China's financial sector, focusing on insurance and banking industries, with an emphasis on the impact of recent market trends and policy changes.

Key Points

Insurance Sector

• CPIC's Agency New Business Growth:

  • CPIC's agency new business growth turned positive in July-August, driven by the improving scale and productivity of its core agent team and a low base effect.
  • The report suggests that CPIC is likely to record positive VNB growth in 3Q22 due to its proactive channel reforms.
  • CPIC is expected to outperform in 2H22 compared to other insurers.

• Life Insurance Performance:

  • Overall life insurance premium growth slowed in August compared to July, due to pandemic restrictions and seasonality.
  • New China Life and Taiping Life saw weak agency new business momentum due to shrinking agent headcount.
  • The declining yield of deposits and WM products is expected to stimulate savings insurance sales and support a turnaround in the life insurance sector.

• P&C Insurance Performance:

  • P&C premium income growth remained strong in August.
  • PICC P&C, Ping An, and CPIC recorded 8.8%, 16.3%, and 13.1% YoY growth, respectively.
  • Zhong An saw a strong rebound in its monthly premiums growth to 35% YoY in August, due to the full digestion of regulatory tightening since July 2021.

• Market Trends:

  • The report highlights divergent performance among life insurers, with CPIC leading the way.
  • It suggests that the life insurance sector may see a turnaround in 3Q22 due to the factors mentioned above.

Banking Sector

• Deposit Rate Cuts:

  • Major banks including ICBC, CCB, ABC, BOC, BoComm, and PSBC cut deposit rates starting from 15 September.
  • The 3-year deposit rate was reduced by 15bps to 2.60%, while other term deposits were cut by 10bps, and demand deposits by 0.5bps.
  • These rate cuts are expected to lower banks' funding costs and ease NIM contraction.

• Estimated Impact:

  • The rate cuts may lower liability costs by 4bps.
  • Banks are estimated to save around RMB100 billion annually on deposit costs, equivalent to 3.5% of the sector's pre-tax profit.

• Market Lending Rates (LPR):

  • The report includes figures on LPR changes, indicating alignment with market expectations.
  • Banks' asset quality remained stable in 2Q22.

• Sector Performance:

  • The report provides insights into the performance of different sub-sectors, including NPL balance, NIM, and earnings growth.
  • It also highlights the impact of the Henan village banks' incident, suggesting it had a manageable effect on the sector.

Valuation and Trading Bands

Banking Valuation

Insurance Valuation

Main Views

• Insurance Sector:

  • CPIC is expected to lead in performance with positive agency FYP growth and potential for positive VNB growth in 3Q22.
  • The life insurance sector may experience a turnaround due to the low base effect and the decline in deposit yields, which is expected to boost savings insurance sales.
  • PICC P&C and Ping An also showed strong P&C premium growth in August.
  • Zhong An saw a significant rebound in its premium growth due to regulatory adjustments.

• Banking Sector:

  • Major banks cut deposit rates starting from 15 September, aiming to lower funding costs and ease NIM contraction.
  • The estimated savings from these rate cuts are substantial, potentially saving around RMB100 billion annually.
  • The report maintains a positive outlook on the banking sector, with several banks rated as "BUY".

Key Information

• Agency Performance:

  • CPIC's agency FYP growth turned positive in July-August, while New China Life and Taiping Life faced challenges due to agent headcount reduction.

• P&C Premiums:

  • The P&C insurance sector saw continued strong growth, with notable figures from PICC P&C, Ping An, and CPIC.

• Deposit Rate Cuts:

  • Major banks cut deposit rates, which is expected to help reduce funding costs and ease NIM pressures.

• Valuation Metrics:

  • The report includes detailed trading bands for both PBV and PER for banks and insurers, offering insights into their relative valuations and potential upside.

Conclusion

The report highlights the positive momentum in the insurance sector, particularly for CPIC, and the supportive impact of deposit rate cuts on the banking sector. It suggests a more optimistic outlook for the second half of 2022 for CPIC and other key players in the insurance and banking industries.