Zhongtai Securities: Interest spreads of listed banks are expected to stabilize in the third quarter, and profit growth will rise marginally

The Zhitong Finance App learned that Zhongtai Securities released a research report saying that the strength of the policy favors the improvement of banks' fundamentals and asset quality expectations, while boosting market risk appetite. It is recommended to focus on the core assets of banks: Bank of Ningbo (002142.SZ), China Merchants Bank (600036.SH), and Industrial Bank (601155.SH). Second, the fundamentals of high-quality urban agricultural commercial banks are highly deterministic. Concerning urban agricultural commercial banks with cheap valuations, Zhongtai Securities continues to recommend Bank of Jiangsu (600919.SH), Bank of Changshu (601128.SH), etc. Third, the economy is recovering weakly, benefiting from debt conversion, and varieties with high dividend rates. Focus on large banks: Agricultural Bank, Bank of China, Post and Storage, ICBC, CCB, etc.

The main views of Zhongtai Securities are as follows:

Interest spread calculation: Manual interest rate payments are prohibited to form support in the 3rd quarter, and interest spreads are expected to stabilize. Interest spreads are expected to rise 0.9 bps month-on-month in the third quarter. Stock mortgage interest rates, debt swaps, and LPR repricing will all be dragged down. The reduction in listed interest rates will gradually take effect, and the supporting effect of prohibiting manual interest rate payments will be reflected in the third quarter.

Scale estimates: Physical demand is weak, and credit growth continues to decline. 1. Credit: In the third quarter, due to weak physical demand, the credit growth rate continued to decline. The credit growth rate of listed banks is expected to be 8.2% in the first three quarters. 2. Interest-bearing assets: The rate of expansion of commercial banks' assets is basically in line with social finance. The overall asset size growth rate of listed banks is expected to be 7.3% in the first three quarters.

Asset Quality Watch: With regard to fairness and stability, the emerging retail trend is expected to improve during the year, and there is still room to free up provisions. In a situation where fairness is stable and the emerging retail trend is expected to improve, it is expected that it will not be very difficult for banks to maintain stable asset quality in 2024, and there is room for maneuver in their stocks of non-performing loans and provisions. On the one hand, infrastructure loans and the physical manufacturing industry, which account for the majority of credit, remain relatively stable; on the other hand, the emerging trend of retail risk is expected to improve under the premise of “expanding domestic demand, promoting consumption, and benefiting people's livelihood” guided by the 926 Politburo meeting. Moreover, the coverage rate of industry provisions is still high. Credit costs cover the net generation of bad money sufficiently, there are redundant reserves to cover risks, and the overall bad industry is expected to remain stable.

Calculation results: Revenue is expected to be -2.4%. Non-interest support continues to weaken, and revenue growth declined marginally in the third quarter. The growth rate of scale has slowed but interest spreads have stabilized. The net interest income growth rate is expected to be -2.9%, which is somewhat moderate compared to the 1H24 level of -3.4% compared to the same period. The non-interest growth rate declined marginally, processing fees continued to be pressured, and other positive non-interest support weakened. The profit growth rate is expected to be around +0.6%. It is estimated that the net profit growth rate of 1-3Q24 is +0.6% year-on-year, and a marginal increase of +0.4% compared with 1H24, mainly due to the continued release of provisions.

Investment advice: The strength of the policy favors the improvement of banks' fundamentals and asset quality expectations, and at the same time boosts market risk appetite. It is recommended to focus on the core assets of banks: Bank of Ningbo, China Merchants Bank, and Industrial Bank. Second, the fundamentals of high-quality urban agricultural commercial banks are highly deterministic. We continue to recommend Bank of Jiangsu, Bank of Changshu, Ruifeng Bank, Chongqing Agricultural Commercial Bank, Shanghai-Agricultural Commercial Bank, Bank of Nanjing, and Bank of Qilu. Third, the economy is recovering weakly, benefiting from debt conversion, and varieties with high dividend rates. Focus on large banks: Agricultural Bank, Bank of China, Post and Storage, ICBC, CCB, etc.

Risk warning: The economic downturn exceeds expectations; risk of deviation from industry data measurement; risk of deviation from actual situation due to insufficient sample statistics; risk that public data used in research reports may lag behind or not be updated in a timely manner.