Zhongtong Finance learned from an Orient Securities research report that in 2024, the bank's operating fundamentals are expected to bottom out. Attention should be paid to the strength of bank risk confirmation and disposal after the new loan interest rate reaches a turning point, the bank interest rate bottom out after the cost of debt of various sectors of society decreases. Taking into account that since May, local government special bonds have accelerated issuance, special national bonds have launched issuances and other fiscal policies have accelerated. Relaxing buying restrictions, a new round of real estate policies such as replacement of old houses, and deduction of mortgage rates, down payments, and re-loans for affordable housing stimulate demand-side policies to increase coding. It is expected that the current stage of bank stocks due to the ten-year Treasury yield-driven dividend strategy trading will turn to the fiscal and real estate sectors after the cycle logic is strengthened.

Orient Securities' main points are as follows:

Reviewing the five rounds of bank sector's rise in the past decade, the driving factors mainly include: Macro policies vigorously stabilize growth, economic expectations improve or have been validated by data; bank fundamentals improve, such as performance growth rate, net interest margin, non-performing rate, credit growth rate and other indicators have marginally improved; capital market liquidity has improved; The expected return rate of the whole society has declined, and the market style has switched to the dividend strategy.

Fiscal and real estate policies have strengthened, cyclicality logic has been strengthened, and the sustainability of economic repair needs the support of credit easing.

Fiscal: The core driving force for entities to leverage up now has shifted from enterprises and residents to government departments. In terms of features, first, the main body of leverage increase has shifted from local governments to the central government, and second, quasi-fiscal tools have been actively deployed. The issuance of government bonds in May has clearly accelerated, and subsequent fiscal policy efforts will continue to support financing needs.

Real estate: Under the guidance of the idea of "coordinating digestion of existing and optimizing incremental housing", the demand-side "de-stocking" may become the core focus of the new round of policies since April, which is expected to boost market expectations.

In addition, the sustainability of economic recovery requires the support of credit easing, highlighting the importance of the banking system, and the management of market value of state-owned enterprises also helps to re-evaluate the value of banks.

Asset expansion towards high-quality development, downward pressure on interest rate trend slows down, and overall asset quality improves.

Asset expansion: Develop towards high-quality direction, regulatory guidance to de-emphasize the growth rate of the total amount, credit structure "increase or decrease", reduce inefficient investment.

Interest rate spread: Downward pressure trend slows down, with natural effects brought by current credit growth patterns and regulatory attention to improve bank liability costs and reduce the impact of asymmetrical interest rate cuts.

Asset quality: The peak of non-performing real estate has passed, and in recent years, banks have maintained a large amount of write-off efforts, and the risks of the inventory continue to be cleared, and the quality of the reports has improved. Although the marginal asset quality in the micro, individual loan areas has fluctuated, the risk is relatively dispersed, the write-off and disposal cycle is short, the synchronization degree with economic recovery is relatively high, and the actual loss rate may not be high, and the overall pressure is controllable.

The low interest rate environment continues, and dividend advantages are still effective.

Orient Securities stated that although the expectation of pro-cyclical is strengthening, the entity economy is still in the process of repair, and the low interest rate environment will continue for some time. The dividend advantages of bank stocks are expected to remain and be strengthened: The new "Guo-9条" strengthens cash dividend supervision, and the valuation repair of bullish high dividend symbols. The dividend ratio of listed banks has marginally increased, and many banks plan to implement midterm dividends. RWA growth rate slows down. With the one-time impact of the implementation of new capital regulations, the capital adequacy ratio has continuously improved since the 23Q3, and the provision has left room for the support of profits, which also provides support for dividends.

The proportion of fund holdings has more room to rise, and under IFRS9, insurance funds are expected to increase allocation of high dividend equity assets.

As of 24Q1, the market share ratio of the bank sector in actively managed equity funds' heavy positions was 2.46%, which was up 0.51 percent from the end of 23 and was still at a low level since 2021, leaving room for improvement. Under the IFRS9 guidelines, equity investments of insurance companies are mostly reclassified as FVTPL, and during the period, profit and loss fluctuations may increase, and high dividend, low volatility equity assets may be added, which also aligns with the allocation criteria for FVOCI. The bank sector may benefit.

Two main lines are currently recommended.

Firstly, cyclical varieties whose overall demand has improved due to increased fiscal and real estate stimulation. It is highly recommended to focus on Bank of Nanjing (601009.SH) and Chongqing Rural Commercial Bank(601077.SH), and it is advised to pay attention to Bank of Ningbo(002142.SZ) and China Zheshang Bank(601916.SH). Secondly, high-dividend state-owned banks, and it is also recommended to pay attention to Bank of Communications(601328.SH) under the expectation of dividend tax adjustment.

Risk Warning: Downstream demand lower than expected, serious competition in homogenized products, profit margins lower than expected, and technological upgrading lower than expected.