CICC: Focus on policies to catalyze improvements in banks' asset quality expectations and increase dividend certainty

The Zhitong Finance App learned that CICC released a research report saying that the revenue and net profit of 3Q24 listed banks are expected to be -2% and +1% year-on-year, which is roughly equivalent to -2% and +2% in 2Q24. Interest spreads are still the main factor dragging down revenue and are in line with market expectations. Compared with 3Q results, the current market focus is more on the implementation and impact of recent financial and fiscal stimulus policies. Policies catalyze improvements in banks' asset quality expectations and increase in dividend certainty, which is a key variable affecting banks' stock prices. Therefore, even if performance is relatively lackluster, the outlook for the sector is positive.

Pay attention to whether subsequent credit demand can recover with the introduction of the policy.

At the end of August, the total assets of the banking sector increased by 8.0% year on year (9.3%, 4.0%, 8.8%, and 6.2% for major banks, stock banks, urban commercial banks, and rural financial institutions, respectively), which rebounded slightly from 7.3% in 2Q24. The recovery mainly came from major banks. The impact of financial “squeezing moisture” and prohibiting manual interest rate replenishment decreased marginally. At the end of September, the year-on-year growth rate of deposits rebounded from 6.1% in 2Q to 7.2%, and demand deposits continued to decline by 1.1 ppt to 19.8% from quarter to quarter. Demand for credit has yet to pick up. At the end of September, loans increased 8.2% year on year (9.6% and 7.3% for major banks and small banks, respectively), and continued to decline from 8.9% in 2Q24. Looking forward to the future, focus on whether policies such as recent interest rate cuts, new structural monetary policy tools, and increased fiscal spending can drive a recovery in credit demand.

Interest spreads are still declining, but the decline is narrowing; debt conversion may lead to another decline in yields.

CICC expects 3q24 listed banks to have a net interest spread of -1 bp month-on-month, corresponding to -18 bps year-on-year. The decline is narrower than 2q24's 21bp, and net interest income is -3% year-on-year. Looking ahead, net interest spreads are expected to narrow by 16 bps and 7 bps in 2024, taking into account factors such as lower interest rates on existing mortgages, lower yield due to debt swaps, and hedging lower interest rates on deposit listings. On October 12, the Ministry of Finance proposed to “increase the amount of debt on a large scale to support local resolution of hidden debts, so that local authorities can free up more energy and financial space to promote development and protect people's livelihood.” The narrowing of bank interest spreads next year will also be affected by the scale and extent of debt replacement.

Target aspect: Focus on China Merchants Bank (600036.SH), Bank of Ningbo (002142.SZ), Bank of Changshu (601128.SH), and major state-owned banks, which have obvious competitiveness in the exhibition industry, as well as the reform and transformation of Chongqing Agricultural Commercial Bank (601077.SH) and Bank of Nanjing (). 601009.SH

Risk factors: The effects of implementing macroeconomic policies fall short of expectations.