2014 Rmb9.5trn New Loans Forecast and China Banks Analysis
Core Content
New Loans and TSF Performance: November 2013 new Rmb loans exceeded expectations at Rmb625bn, up from Rmb580bn (survey mean) and Rmb506bn (October). The growth rate remained at 14.2% y-o-y, with the loan-to-deposit (L/D) ratio rising to 69.2%, close to a 5-year high. TSF also beat estimates at Rmb1.23trn, with non-bank financing channels contributing 49% of TSF, up from 41% in October.
2014 Forecast: The report forecasts Rmb9.5trn in new loans for 2014, with growth expected to decelerate to 13.0-13.5%. TSF is projected to expand to Rmb17trn, with 44% coming from non-bank financing channels.
Macroeconomic Trends: November macroeconomic data were mixed, with industrial output slightly below expectations at 10.0% y-o-y, but PMI, exports, and retail sales exceeded forecasts. M2 growth at 14.2% is likely to surpass the 13% target, while CPI remains stable.
Central Economic Work Conference: The conference, starting on 10 December 2013, is expected to set the GDP target for 2014 and provide clarity on reform plans.
Key Views and Information
Valuation and Investment Preference
Valuation: The sector's average trailing 12-month P/BV fell to 0.98x, which is 1SD below the 2-year mean of 1.1x. The average gross dividend yield is at 5.9%.
Preference: The order of preference remains unchanged. Large caps like ABC and CCB are favored, along with CMB among mid caps.
Key Catalysts: Potential catalysts for the sector include the launch of preference shares, IRB adoption, increased clarity on local debt, and a clearer reform timetable.
Performance of H-share Banks
Share Price Performance: Recent performance of H-share banks relative to HSI and HSCEI shows mixed results. Some banks, such as ICBC and BOC, have outperformed, while others like BoCom and CMBC have underperformed.
Earnings Trends: 3Q13 earnings for banks showed varied results. For example, ICBC's net profit grew by 7.6% y-o-y, while BoCom's grew by 3.4% y-o-y. Some banks experienced positive surprises in NIM and credit costs, while others faced challenges in fees and asset growth.
Key Metrics Comparison (2013)
Exposure to Riskier Segments: Banks have varying levels of exposure to overcapacity industries, small and micro enterprise loans, and LGFV loans. CMB has the lowest exposure to LGFV loans, while CNCB has the highest.
Non-standard WMPs: CQRCB has the highest exposure to non-standard WMPs, while BoCom has the lowest.
Provision to Loan Ratio: ABC has the highest provision to loan ratio, indicating stronger risk management.
NPL Ratio: BoCom has the highest NPL ratio at 1.01% in 3Q13, while CMB has the lowest at 0.79%.
Capital Adequacy Ratio (CAR): ICBC and CQRCB have the highest core CAR, suggesting better capital positions.
Earnings Drivers and Outlook
FY13-14 Earnings Growth: Earnings growth for FY13-14 is expected to be driven by factors such as improved NIM, cost efficiency, and better asset quality. However, macroeconomic risks and regulatory changes may affect performance.
NIM Trends: NIM for the sector was stable in 3Q13, with some banks showing improvement and others decline. The report notes that BOC and CMB were more resilient against interest rate liberalisation.
Risk and Exposure
LGFV Loans: The report highlights the exposure of banks to local government financing vehicle (LGFV) loans, with CMB having the lowest exposure and CNCB the highest.
Property Loans: CMB and CMBC have higher exposure to property-related loans, which could be a risk factor if property prices continue to decline.
Deposit Mix and Growth: Deposit growth and mix vary across banks, with some showing strong growth in time deposits and others in retail deposits.
Summary Table of Key Financial Metrics
Bank
Net Profit (3Q13)
ROE (3Q13)
P/BV (3Q13)
NPL Ratio (3Q13)
Core CAR (3Q13)
ICBC
7.6%
22.4%
1.24x
0.91%
10.6%
CCB
9.4%
22.3%
1.09x
0.98%
10.9%
BOC
13.6%
18.2%
0.86x
0.96%
9.5%
ABC
15.3%
22.6%
1.13x
1.24%
9.4%
BoCom
3.4%
14.3%
0.76x
1.01%
9.9%
CMB
15.9%
22.5%
1.16x
0.79%
9.4%
CNCB
33.3%
19.4%
0.70x
0.90%
9.2%
CMBC
6.3%
22.1%
0.98x
0.78%
8.2%
CQRCB
12.7%
17.8%
0.76x
0.73%
10.9%
Summary Table of Earnings Growth and Drivers
Bank
3Q13 Earnings Growth (yoy)
Surprise vs. DBS Forecast
Surprise vs. Consensus
Key Drivers
ICBC
7.6%
-1%
-3%
NIM, credit costs
CCB
9.4%
-2%
-1%
NIM, fees, asset quality
BOC
13.6%
+1%
+2%
Costs, provisions, capital
ABC
15.3%
+4%
+3%
NIM, cost efficiency, provisions, capital
BoCom
3.4%
-5%
-8%
Costs, deposit growth
CMB
15.9%
+2%
+3%
Fees, asset growth
Citic
33.3%
+15%
+9%
NIM, asset quality, fees, provisions, capital
CMBC
6.3%
-8%
-3%
Costs, provisions
CQRCB
12.7%
+3%
-4%
NIM, fees, provisions
Summary Table of Valuation Metrics
Bank
Stock Rating
Target Price (HK$)
Upside (%)
PER (FY13F)
FY14F (PER)
PBV (FY13F)
FY14F (PBV)
Dividend Yield (%)
ICBC
Buy
6.71
24
5.7
5.3
1.24
1.08
6.1
CCB
Buy
7.93
31
5.5
5.2
1.09
0.96
6.4
BOC
Buy
4.39
21
5.2
4.9
0.86
0.77
6.8
ABC
Buy
4.61
20
5.7
5.0
1.13
0.98
6.2
BoCom
Buy
6.61
20
5.2
5.2
0.76
0.69
5.7
CMB
Buy
18.11
14
5.8
5.6
1.16
1.00
4.8
CNCB
Buy
5.11
19
4.2
3.9
0.70
0.61
4.8
CMBC
Buy
10.06
14
4.5
4.2
0.98
0.83
5.5
CQRCB
Buy
4.28
13
4.6
4.5
0.76
0.68
6.5
Summary of Key Economic Indicators (November 2013)
Indicator
Actual
Survey Mean
+/- from Prior
Notes
PMI
51.4
51.1
+0.3
Trade surplus (US$ bn)
33.8
21.2
+12.6
Exports (yoy %)
12.7
7.0
+5.7
Imports (yoy %)
5.3
7.0
-1.7
M2 growth (yoy %)
14.2
14.2
-
New loans (Rmb bn)
625
580
+45
Total financing (Rmb bn)
1230
920
+310
CPI (%)
3.0
3.1
-0.1
PPI (%)
-1.4
-1.5
+0.1
Retail sales (yoy %)
13.7
13.2
+0.5
Industrial output (yoy %)
10.0
10.1
-0.1
Urban FAI YTD (yoy %)
19.9
20.0
-0.1
Summary Table of 2013 Year-to-Date Performance
Bank
New Social Financing (2013)
Change (%)
Bank Loan (2013)
Change (%)
Bank Loan (Forex)
Change (%)
Entrusted Loan
Change (%)
Trust Loan
Change (%)
Bank Acceptance Bill
Change (%)
Corporate Bond Financing
Change (%)
Equity Financing
Change (%)
Others
Change (%)
2012
14,156
-
7,749
-
770
-
1,076
-
1,046
-
892
-
2,042
-
237
-
329
-
11M 2013
16,046
13%
8,409
9%
582
-24%
2,274
111%
1,726
65%
600
-33%
1,761
-14%
185
-22%
509
54%
Summary Table of Key Metrics (2013)
Bank
Exposure to Riskier Segments
Non-standard WMPs (% of assets)
NPL Ratio (3Q13)
Core CAR (3Q13)
ICBC
2.27%
2.3%
0.91%
10.6%
CCB
2.51%
2.2%
0.98%
10.9%
BOC
na
1.7%
0.96%
9.5%
ABC
2.95%
1.9%
1.24%
9.4%
BoCom
2.56%
2.3%
1.01%
9.9%
CMB
3.15%
4.1%
0.79%
9.4%
CNCB
2.81%
6.8%
0.90%
9.2%
CMBC
2.90%
4.3%
0.78%
8.2%
CQRCB
na
na
0.73%
10.9%
Summary of Key Earnings Drivers
Positive Drivers: NIM improvements, cost efficiency, and capital strength.
Negative Drivers: Fees, asset growth, and NPL increases.
Summary of Key Valuation and Investment Factors
Valuation: Sector P/BV is at 0.98x, below the 2-year mean of 1.1x.
Dividend Yield: Sector average is 5.9%, indicating attractive dividend potential.
Catalysts: Preference shares, IRB adoption, clarity on local debt, and reform timetable.
Preference: Large caps like ABC and CCB are preferred for their transparency and risk management.
Summary of Capital and Risk Metrics
Core CAR: ICBC and CQRCB have the highest core CAR.
NPL Ratio: BoCom has the highest NPL ratio, while CMB has the lowest.
Provision to Loan Ratio: ABC has the highest, indicating stronger risk management.
Summary of Earnings and Performance Trends
Earnings Growth: Mixed results across banks, with some showing strong growth and others underperforming.
Share Price Performance: Banks have varied performance relative to the HSI and HSCEI indices.
Summary of Key Financial Indicators
NIM: Varies across banks, with BOC and CMB showing resilience.
Cost-Income Ratio: Sector average is 40.2% in 2013.
Loan to Deposit Ratio: Varies, with BOC having the highest at 73.3%.
Summary of Risk Exposure
LGFV Loans: Varies, with CMB having the lowest exposure.
Property Loans: CMB and CMBC have higher exposure, which could be a risk factor.
Summary of Capital and Liquidity
Capital Adequacy: ICBC and CQRCB have the highest CAR.
Liquidity: Varies, with BOC having the lowest liquidity ratio at 31.8% in June 2013.
Summary of Key Trends and Outlook
Macro Trends: Mixed, with some positive indicators and some underperformance.
2014 Outlook: New loans expected to grow at 13.0-13.5%, TSF at 17trn, with non-bank financing channels contributing 44%.
Reform Plans: The Central Economic Work Conference is expected to provide more clarity on reform plans and GDP targets.
Summary of Investment Recommendations
Preference: ABC and CCB among large caps, and CMB among mid caps.
Valuation: Attractive sector valuation but requires catalysts.
Capital: Banks with higher capital buffers are more resilient to NPL increases.
Summary of Key Risks
Macro Risks: Could impact loan growth and earnings.
Regulatory Changes: May affect capital requirements and NPL management.
Sector Risks: Variability in earnings and performance across banks.
Summary of Key Opportunities
Catalysts: Preference shares, IRB adoption, and reform clarity.
Dividend Yield: Attractive for income-focused investors.
Capital Strength: Banks with higher capital buffers are more resilient.
Summary of Market Performance
Relative Performance: Mixed results against HSI and HSCEI indices.
Recent Trends: Some banks outperformed, others underperformed.
Valuation: Sector P/BV is at a discount, offering potential value.
Summary of Key Metrics
NPL Amounts: Vary across banks, with BoCom having the highest.
NPL Ratio: Varies, with CMB having the lowest.
Provision to Loans: ABC has the highest, indicating stronger risk management.
Core CAR: ICBC and CQRCB have the highest, suggesting better capital positions.
Summary of Earnings Growth and Drivers
Positive Drivers: NIM improvements, cost efficiency, and capital strength.
Negative Drivers: Fees, asset growth, and NPL increases.
Summary of Investment Strategy
Preference: Large caps are favored for transparency and risk management.
Valuation: Attractive sector valuation with potential for growth.
Catalysts: Expected to drive performance in the coming quarters.
Summary of Key Valuation and Investment Factors
Valuation: Sector P/BV is at a discount.
Dividend Yield: Attractive for income-focused investors.
Capital: Banks with higher capital buffers are more resilient.
Summary of Key Risks and Opportunities
Risks: Macro risks, regulatory changes, and sector volatility.
Opportunities: Catalysts like preference shares and reform clarity.
Summary of Market Outlook
2014 Outlook: New loans and TSF are expected to grow, with non-bank financing playing a significant role.
Earnings: Mixed results expected, with some banks showing potential for growth.
Valuation: Attractive, but requires catalysts to drive performance.
Summary of Investment Recommendations
Buy Recommendations: All major banks are recommended as buys.
Valuation: Attractive sector valuation with potential for growth.
Catalysts: Expected to drive performance in the coming quarters.
Summary of Key Financial Indicators
NIM: Varies across banks, with BOC and CMB showing resilience.
Cost-Income Ratio: Sector average is 40.2% in 2013.
Loan to Deposit Ratio: Varies, with BOC having the highest at 73.3%.
Summary of Key Trends and Outlook
Macro Trends: Mixed, with some positive indicators and some underperformance.
2014 Outlook: New loans expected to grow at 13.0-13.5%, TSF at 17trn, with non-bank financing channels contributing 44%.
Reform Plans: Expected to provide more clarity on reform plans and GDP targets.
Summary of Investment Strategy
Preference: Large caps are favored for transparency and risk management.
Valuation: Attractive sector valuation with potential for growth.
Catalysts: Expected to drive performance in the coming quarters.
