The Zhitong Finance App learned that China Galaxy Securities released a research report saying that with 2024Q3, the revenue of listed banks increased 0.89% year on year; net profit to mother increased by 3.53% year on year, all improving compared with the previous quarter. The marginal recovery in the performance of listed banks was mainly due to the narrowing of the year-on-year decline in net interest income and middle income. At the same time, other non-interest income, mainly investment income, continued to increase rapidly, which is still the main support for revenue. There was less pressure on the provision plan, and impairment losses continued to decline to drive profit growth. The effect of the provision on profit was slightly weaker than in the first half of the year. Looking ahead to the future market, at the inflection point of the policy, positive factors on bank fundamentals have accumulated; performance recovery and capital replenishment will continue to support banks' dividend attributes.

The main views of China Galaxy Securities are as follows:

Both revenue and profit achieved positive growth in a single quarter

From January to September 2024, the operating income of listed banks decreased 1.05% year on year; profit before provision decreased 2.12% year on year; net profit to mother increased 1.43% year on year; ROE was 11.22%, down 0.74 percentage points year on year. 2024Q3, listed banks' revenue increased 0.89% year over year; net profit to mother increased 3.53% year over year, both improving compared to the previous quarter. The marginal recovery in the performance of listed banks was mainly due to the narrowing of the year-on-year decline in net interest income and middle income. At the same time, other non-interest income, mainly investment income, continued to increase rapidly, which is still the main support for revenue. There was less pressure on the provision plan, and impairment losses continued to decline to drive profit growth. The backfeeding effect of provisions on profits was slightly weaker than in the first half of the year, and profit before the 2024Q3 provision increased 0.39% year on year. Looking at the segment segment, the overall performance of urban and agricultural commercial banks is still excellent, and the performance improvement of state-owned businesses is quite obvious.

The reduction in interest spreads has narrowed, and the effects of optimizing debt costs have been released, and the cessation of “manual interest compensation” affects pressure relief

From January to September 2024, net interest income of listed banks fell 3.19% year on year, mainly affected by the slowdown in scale expansion and continued decline in return on assets. At the same time, debt cost optimization efforts remained unabated, and the decline in net interest receivers was narrower than in the first half of the year. Net interest spreads continued to be dragged down by declining asset-side returns, while debt-side cost optimization results were further released, providing some support for interest spreads. From January to September 2024, the net interest spread of listed banks was 1.57%, down 19BP. The decline was narrower than in the same period last year.

Looking forward to the future, a package of incremental policies such as lowering interest rates and lowering interest rates on stock mortgages and deposit listing interest rates has been implemented. Bank interest spreads will still face downward pressure in the short term, and it is expected that they will gradually stabilize in the long run. The scale of table expansion has slowed down, and the impact of “manual interest payments” has gradually been absorbed. As of September, no loans or deposits increased by 6.98% and 4.13% compared to the previous year, respectively; the month-on-month growth rate of China Stock Bank deposits all increased compared to the previous quarter.

The decline in middle income has narrowed, and the high growth rate of non-interest income in the region continues

From January to September 2024, the non-interest income of listed banks increased 5.2% year on year. The growth rate increased compared to the first half of the year, mainly benefiting from continued high growth in other non-interest income. Revenue from the intermediary business fell 10.75% year on year. It is expected to be affected by the “integration of reporting and banking” and fund fee reduction policies, but the decline was narrower than in the first half of the year. Other non-interest earners increased 25.61% year over year. Among them, the investment income division increased by 23.89%, and although the growth rate has slowed slightly, it is still at a high level; at the same time, the fair value change income and exchange income of state-owned banks also improved quite clearly.

The overall asset quality is stable, and attention is being paid to the core Tier 1 capital replenishment of major state-owned banks

As of September 2024, the non-performing loan ratio of listed banks was 1.17%, which was not the same as the previous quarter and the previous year; the provision coverage rate was 302.14%, not down 7.34 percentage points from the previous year. The overall quality of assets is stable, and the level of risk offsetting is sufficient. In September, the core Tier 1 capital adequacy ratio of listed banks was 10.53%, not up 27BP from the previous year; among them, state-owned behavior was 11.9%. After the country's capital injection is implemented in the future, the ability of major state-owned banks to serve the real economy and risk resilience is expected to further increase.

Investment advice: Bank revenue and net profit have been restored, interest rate spreads have narrowed, and the effects of optimizing debt costs have gradually shown that Dabank Credit investment and risk resilience are expected to benefit from the implementation of capital increases in countries. Countercyclical adjustment of fiscal and commodity market policies has been strengthened to promote economic recovery. At the inflection point of the policy, positive elements of banking fundamentals have accumulated. Performance recovery and capital replenishment continue to support banks' dividend attributes. Continue to be optimistic about the allocation value of the banking sector and maintain the recommended rating.

In terms of individual stocks: We recommend Industrial and Commercial Bank (601398.SH), China Construction Bank (601939.SH), Postbank (601658.SH), Bank of Jiangsu (), and Changshu Bank (USD). 600919.SH 601128.SH

Risk warning: the economy falls short of expectations, risk of deteriorating asset quality; risk of continued decline in interest rates and pressure on NIM.