According to the Futu Finance APP, Open Securities released a research report stating that due to the improvement in the asset quality of corporate business, which offset the upward pressure on retail risk, the listed banks continue to have less provision for asset impairment losses and contribute to profits. Therefore, the contribution of provisions to performance has increased marginally, resulting in a slight improvement in profitability indicators and the net profit growth rate of the listed banks turning positive from negative in Q1. Although some companies' cash flows are under pressure in the current economic situation, their ability to resist systematic risks is still stronger than that of individuals. In addition, due to concerns about previous impacts on the real estate and urban investment markets, listed banks have made forward-looking provisions for corporate business, so even if losses are incurred, the current impact is still limited.

The major viewpoints of Open source Securities are as follows:

Economic recovery is being established, and banks are still facing operating pressure.

The current economic environment is still volatile, with declining expectations for household income and weakened investment momentum for enterprises. Listed banks still face significant external pressures in their operations. From the perspective of operating indicators, the revenue growth of listed banks is generally under pressure. On the one hand, the insufficient effective demand has slowed down the expansion of bank scale, and the downward trend of asset-side returns has increased the pressure of narrowing interest rate spreads. On both the quantity and price ends, there is pressure and the decline in interest income continues to widen. On the other hand, the contribution of non-interest income is limited, and the negative growth of fee income has a major impact on state-owned banks. However, due to the improvement in the asset quality of corporate business, which offset the upward pressure on retail risk, the listed banks continue to have less provision for asset impairment losses and contribute to profits. Therefore, the contribution of provisions to performance has increased marginally, resulting in a slight improvement in profitability indicators and the net profit growth rate of the listed banks turning positive from negative in Q1.

Internal and external factors resonate, and the growth rate of bank balance sheet expansion slows down.

In the first half of the year, the growth rates of deposits and loans for listed banks have both slowed down, and credit growth is mainly driven by corporate business, while the momentum of retail loan issuance has declined. Among external factors, insufficient effective demand has the most significant impact, especially for banks with a weak asset deployment capacity and no advantageous customer base. Their credit growth will continue to be under pressure, and deposit-taking capacity will also be affected. In addition, with the central bank's credit control measures of "activating stock and reducing idle", as well as the change in the accounting method for quarterly GDP calculation in the financial industry from scale indicators to income indicators, the impact of regulatory measures has also weakened the motivation for blind expansion of bank scale.

From the perspective of internal factors, risk-return factors prompt banks to actively reduce clients: for example, some large enterprise clients have strong bargaining power, and although the bank's lending to them has expanded in scale, it negatively affects the interest spread; at the same time, influenced by the economic downturn, banks have increased the scale of reducing potential high-risk clients, tightened credit policies, and independently withdrew from the competition of some clients. Although these factors have put pressure on the expansion of the bank's scale in the current period, they have promoted a positive trend in future bank competition and may optimize and improve the banking industry's operating environment.

Retail and corporate non-performing loan trends are diverging, with the risk of individual loan rebound still present within the year.

Beneath the stable non-performing loan ratio of listed banks, the risks of retail and corporate business are diverging. Although under the current economic situation, some corporate cash flows are under pressure, the resistance of corporate enterprises to systemic risks is still stronger than that of individuals. In addition, due to concerns about the impact of previous real estate and urban investment, listed banks have made proactive provisions for public business, so even if losses are incurred, the impact in the current period remains limited. On the retail side, the marginal non-performing loan rates for various retail loans have risen due to the decline in individual repayment ability and willingness. If the expectation of household income cannot be reversed, then the pressure on certain banks' personal business loans and credit card asset quality may continue within the year. In addition, crediting provisions for agricultural commercial banks have been significantly over-provided, which may highlight significant pressure on the operation of small and micro-enterprises and individual businesses within the year.

Investment advice

Revenue and profits are growing positively. The retail business risks are controllable for state-owned banks, benefiting symbols such as Agricultural Bank of China (601288.SH); quality banks with dividend dividend strategy diffusion, benefiting symbols such as China Citic Bank (601998.SH), Shanghai Rural Commercial Bank (601825.SH); banks with advantages in public business, benefiting symbols such as Bank of Jiangsu (600919.SH), Bank of Changsha (601577.SH), Bank of Chengdu (601838.SH), Jiangsu Jiangyin Rural Commercial Bank (002807.SZ); focus on the valuation repair of core bank assets under economic recovery, benefiting symbols such as CM Bank (600036.SH), Bank of Ningbo (002142.SZ).

Risk warning: macroeconomic downturn, unexpected decrease in house prices, overseas economic uncertainties spilling over.