The Zhitong Finance App learned that Everbright Securities released a research report saying that in the context of the “asset shortage” pressure, the difference between the dividend rate of A-share listed banks and the yield of 10Y treasury bonds is still at an all-time high. Currently, the dividend rates of major A-share banks are generally between 5% and 6%. Before the spread returned to the average, the banking sector was still highly attractive as a “fixed income” type with steady profit growth, high dividend rates, and low valuation fluctuations.

It is recommended to focus on investment targets: ① Small and medium-sized banks in the Jiangsu and Zhejiang regions with good regional economic growth, strong epitaxial expansion capacity, and rapid profit growth, it is recommended to focus on Suzhou (002966.SZ), Bank of Hangzhou (600926.SH), Bank of Nanjing (601009.SH), Bank of Jiangsu (600919.SH); ② clearly benefiting from the suspension of “manual interest payments” on deposits and implementation of real estate stabilization policies; ③ traditional “undervalued, high dividend” varieties. Focus on Bank of Beijing () and Agricultural Bank (DAB). 601169.SH 601288.SH

The main views of Everbright Securities are as follows:

24Q1 Listed Bank Operation Overview: Interest spreads are dragging down stable interest income, non-interest contributions are declining, asset quality is steady, and provision increases are slowing down to feed back profits

In 24Q1, the 37 listed banks' revenue, PPOP, and net profit growth rates were -1.8%, -3.1%, and -0.7%, respectively, down 0.9, 0.2, and 2 pcts from 2023, respectively. Among them, the growth rates of net interest income and non-interest income were -3.1% and 1.4% respectively, down 0.2 and 4.4 pcts from 2023, respectively. Listed banks mainly drive net interest income through scale expansion, but the scale contribution declined, and NIM's negative drag narrowing boosted the growth of net interest income; the non-interest income of major state-owned banks slowed markedly due to changes in fair value and a high profit and loss base, and the non-interest income contribution declined.

Scale: The “volume of credit is declining steadily”, and the intensity of deposit regularization is weakening

At the end of 24Q1, the interest-bearing assets of listed banks grew 10% year on year, down 1.8 pct from the beginning of the year; credit growth rate was 10.2%, down 1 pct from the beginning of the year. The overall credit investment of listed banks showed the characteristics of “steady decline in volume and smooth pace”. The credit structure continues to be “strong against the public and weak against retail”, and bill impulse behavior has declined markedly. Among them, the “Five Major Articles” key areas and weak links, such as infrastructure, manufacturing, science and innovation, and green, have maintained a high level of credit expansion. Financing for housing-related enterprises has improved, and residents' credit expansion is highly dependent on operating loans; the deposit structure shows the characteristics of weakening deposit regularization, increased deposit “disintermediation”, and unbalanced core debt distribution.

Pricing: Interest spreads continue to be pressured to decline by 13 bps, and there is a lot of pressure to reprice stock loans on a rolling basis

Asset side: The yield on interest-bearing assets declined markedly in 24Q1, mainly affected by the following factors: ① Under the cumulative effect of the LPR cut and insufficient demand for effective credit, the yield on newly issued loans was under pressure; ② residents' willingness to increase leverage was relatively insufficient, and retail credit pricing with relatively high yield was strongly squeezed; ③ Along with the successive maturing and renewal of high-priced loans in the previous period, interest spreads faced rolling repricing pressure on the asset side; ④ the impact on interest spreads was still evident from the one-time reduction in stock mortgage interest rates.

Debt side: The debt cost of the banking system shows certain rigid characteristics. Lowering deposit listing interest rates can help save retail deposit costs, but the impact on public deposit costs is limited. Large-scale “manual interest payments” have boosted interest payment rates, and the situation is expected to improve after regulation.

Non-interest income: The growth rate slowed under a high base, and the share of revenue increased by 1 pct to 29%

① Net processing fee and commission revenue for 24Q1 grew -10.3% year over year, down 2.3 pct from 2023. When the capital market is volatile and residents' risk appetite is low, income from escrow funds, consignment financial management, etc. is generally under pressure. The “integrated reporting and banking” of insurance has been implemented, and the contribution of 24Q1 agency insurance income has also declined markedly; ② Net other non-interest income grew 19.2% year-on-year. Some banks increased by releasing surpluses in bond investments while other non-interest income surged. Due to the decline in market interest rates, the investment income and fair value change profit and loss of listed banks continued to rise, but there was a slowdown due to the high base of major state-owned banks.

Asset quality: Overall stable, retail side failure is expected to continue to rise

At the end of 24Q1, the non-performing loan ratio of listed banks was 1.25%, down 1 bps from the beginning of the year; the sample bank's attention rate was 1.5%, up 4 bps from the beginning of the year, and the pressure on problematic assets in the banking system is still ongoing. By industry, it is expected that poor performance will decline steadily, retail sales will continue to rise, and risks in the real estate sector will continue to be exposed; in terms of provision, the decline in provision planning is slowing down. The provision coverage rate is 243.2%, up 0.4 pct from the beginning of the year, and risk offsetting capacity remains high.

Capital: Implement “new capital regulations” or improve the core Tier 1 capital adequacy ratio of major state-owned banks by 50 bp or more

The core Tier 1 capital adequacy ratio of listed banks at the end of 24Q1 was 11.4%, up 29 bps from the beginning of the year. In the first quarter of the 2018 to 2023 calendar year, CET1 of major state-owned banks all declined compared to the beginning of the year. The average decline was around 10 bp, while 24q1 increased by 40 bps. It is estimated from this that, excluding the influence of seasonal factors, “new capital regulations” will be implemented or improved by 50 bp or more of the core Tier 1 capital adequacy ratio of major state-owned banks. Agricultural and commercial banks, which have a high share of small and medium-sized enterprises, have also benefited, while stock banks have remained relatively flat.

Mid-term banking business outlook for 2024

① Volume: Under the guidance of the “balanced investment” policy, the 24Q2 banking system is expected to expand more intensively than the same period last year. Credit investment is expected to increase year-on-year, and still dominate public loans.

② Price: Under the influence of LPR price cuts and rolling repricing factors, asset-side pricing still has a lot of downward pressure, but cutting interest rates on deposits and restricting “hyper-autonomous” deposits will help improve debt costs, and the pressure on 24Q2 interest spreads will narrow or ease.

③ Insurance: Currently, macroeconomic growth uncertainty still exists. Long-term variables such as residents' employment and income will take time to recover. It is expected that residents' credit risk may rise further, and operating loans are worth paying attention to. The revenue growth rate of 1h24 listed banks is expected to increase by 1 pct to -0.9% compared to 1q24, and the profit growth rate will increase slightly by 0.2 pct to -0.5%, and generally remain stable.

Risk analysis: Economic growth falls short of expectations; real estate risk situation disturbances; deviation between estimated values and actual conditions.