Open Source Securities: Cautiously optimistic about the transition of banks' new retail asset risk regulations, and there is still room for adjustment

The Zhitong Finance App learned that Open Source Securities released a research report saying that the retail risk of state-owned banks is manageable. It uses limited settlement methods to give them a higher ability to adjust provisions. The coordination of influencing factors is better, the provision indicators are more deterministic, and they can still be cautiously optimistic about the quality of the retail assets of state-owned banks; some stock banks have a high loan ratio of depreciated loans, which have a margin of safety advantage. With the retail defect rate improving, there are signs that stock risks have cleared up. We recommend China CITIC Bank (601998.SH). The beneficiaries are Agricultural Bank (601288.SH), China Construction Bank (601939.SH), China Merchants Bank (), Bank of Hangzhou (USD), and Chongqing Agricultural Commercial Bank (Sichuan). 600036.SH 600926.SH 601077.SH

The main views of Open Source Securities are as follows:

The strength of bad certification of listed banks has not abated, and the transition period of the new risk regulations is approaching, and the impact may be manageable

Currently, the non-performing rate of listed banks remains stable, but the overdue indicators of state-owned banks have rebounded, and the attention rate of some agricultural and commercial banks is rising, mainly due to rising risks in small and retail businesses. It is estimated that the bad generation of some banks is still under pressure. At the same time, the deviation in their loans overdue for more than 90 days has increased, and the market is concerned that their bad decisions have relaxed. However, the bank believes that the current bad generation mainly comes from individual loans and is affected by bad decisions under the Overdue Act. The rise in this indicator only reflects an increase in the share of bad retail sales and cannot be easily linked to the intensity of bad confirmations.

Furthermore, the “Financial Asset Risk Classification Measures for Commercial Banks” will end the transition period in 2025, and the depreciated loan ratio of stock banks and urban commercial banks will still be significantly higher than the non-performing loan ratio. Considering that completing the rectification within the year will greatly affect their profit statements, there are still doubts about whether the criteria for determining non-performing and impairment during the transition period can be unified. It is not ruled out that high-pressure banks seek regulatory exemptions or internally adjust the criteria for determining impaired loans to avoid the pressure of making plans during the year. Therefore, impairment loans are classified as having an impact on profit statements that are less than market expectations.

As public business risks continue to be fixed, we can still be cautious and optimistic about the quality of retail assets of state-owned banks

Currently, business operations are still weak, and public credit risks are still being repaired. The bank believes this is a reflection of the effectiveness of policy support and the bank's own risk mechanism. However, we still need to see that the defective rate of state-owned banks in the leasing and retail, and construction industries is still rising. Furthermore, the real estate defect rate of some urban and agricultural commercial banks has rebounded strongly. Retail risk, with the exception of individual banks that have recovered margins, the retail defect rate of other banks has increased significantly. However, the bank believes that it can still be optimistic about the quality of its assets: on the one hand, the absolute retail defect rate of state-owned banks is still low among listed banks, and their poor retail sales are easier to recover. There is no incentive to dispose of them at low prices at this stage, so risk exposure is more adequate; on the other hand, the revenue stability of the retail customer base of state-owned banks is stronger, and their asset quality will also be significantly restored in the future.

The loan ratio of depreciated loans has increased dramatically, and the four major bank provision indicators are more definitive

Beginning in 2024, listed banks have shown signs of actively reducing provisions, but not all of them contributed to profits. The provision coverage rate of some urban and agricultural commercial banks has dropped drastically, but loan impairment losses have dragged down profits. In contrast, while state-owned bank provision coverage has declined slightly, loan impairment losses can still contribute to performance. At the same time, the bank estimates that future provision coverage indicators of listed banks are showing a trend of differentiation. The four major banks are relatively stable, mainly due to greater coordination among the factors influencing the four major banks' provisions (generation of defects, target failure rate, and strength of provision calculation), which can maintain long-term dynamic balance. In addition, the bank observed changes in bank provision calculation behavior. The loan ratio for the first and second stage loans declined, and the loan ratio for the third stage (depreciated) loan ratio increased sharply. This reflected an increase in the bank's non-performing loan provision and gave the bank a higher margin of safety.

Risk warning: Overseas economic uncertainty spillover.