Guotai Junan Securities expects a marginal improvement in the mid-year report of banks compared to the first quarter, while also paying attention to the possibility of an accelerated fiscal pace in Q3. According to Guotai Junan Securities' research report, the banking industry is gradually adapting to the new normal of low growth, with new social financing, credit, and money supply shifting towards a more efficient and realistic direction that better matches real demand. The interest rate cut signals stable growth, with the timing of the interest rate cut in July focusing more on domestic monetary policy. This LPR cut may drag down the net interest margin of listed banks, but the impact on bank interest margins is relatively manageable. The policy rate status of OMO rates is further clarified, and the interest rate transmission mechanism is clearer
According to the information from the Zhitong Finance and Economics APP, Dongfang Securities released a research report stating that under the policy tone of preventing risks and squeezing out excess liquidity by regulatory authorities, the banking industry is gradually abandoning the mindset of pursuing scale and adapting to the new normal of low growth. The increase in social financing, credit, and money supply is shifting towards a more efficient and realistic direction, aligning more closely with nominal economic growth and real demand. Considering the positive impact of regulatory policies such as manual interest rate adjustments on liability costs over the past 24 years, as well as the better performance of bond investment returns since the unexpected decline in the 10-year government bond yield since June, it is expected that the interim reports of banks will show a marginal improvement compared to the first quarter. At the same time, taking into account the economic situation, the current status of real demand, and the relatively slow fiscal pace in the first half of the year, attention is focused on the possibility of an acceleration in fiscal pace in Q3.
The main points of Dongfang Securities are as follows:
Interest rate cuts signal stable growth and demonstrate determination to achieve the annual economic and social development goals. The year-on-year GDP growth rate in the second quarter was 4.7%, slightly slower than the first quarter. This interest rate cut is a response to the Third Plenum's "firm determination to achieve the annual economic and social development goals," demonstrating the central government's determination to stabilize growth. The timing of the interest rate cut in July, first, after the previous manual interest rate adjustments, the constraints on interest rate differentials have been partially alleviated; second, the unexpected slowdown in the U.S. CPI growth rate in June, reinforced expectations of a Fed rate cut, with the marginal weakening of exchange rate constraints, making monetary policy more focused on domestic issues.
May drag down the interest margin of listed banks by 2.5 basis points, and regulatory measures on manual interest rate adjustments have reserved space on the liability cost side, with the impact on the banking industry being controllable. Based on static calculations of the repricing structure, maturity structure, and asset balance at the end of 23, this LPR cut may drag down the net interest margin of listed banks by 2.46 basis points, with the impact expected to be more pronounced in 25. Although there was no adjustment to the deposit benchmark interest rates before this interest rate cut, the positive effect of manual interest rate adjustment regulations in the second quarter on bank interest margins may exceed 5 basis points, without the need to wait for repricing. Overall, the impact on bank interest margins is relatively controllable.
The policy status of OMO rates is further clarified, and the interest rate transmission mechanism is clearer. How should we understand the changes in OMO rates and the switch from price tendering to quantity tendering for reverse repurchase operations? First, the policy status of OMO rates is further clarified, while the policy color of MLF rates tends to fade, making the interest rate transmission mechanism of OMO-LPR clearer; second, the switch from price tendering to quantity tendering also reduces operational costs and enhances the market-oriented nature of the policy.
The phased relaxation of MLF collateral may provide the central bank with a larger scale for securities borrowing operations. On July 1st, the central bank announced that it would conduct bond borrowing operations for some primary market dealers in the near future, explicitly stating that it will continue to borrow and sell government bonds based on the operation of the bond market. This announcement by the central bank temporarily exempts some collateral for MLF, targeting institutions with demand to sell medium and long-term bonds. The collateral for MLF includes government bonds, central bank bills, policy bank bonds, high-grade credit bonds, etc. The exemption means that some bonds used as collateral will be released, potentially providing the central bank with a larger scale for securities borrowing operations.
A new monetary policy framework is taking shape, and there may be another interest rate cut in Q4. It is expected that the central bank will further streamline the transmission mechanism from short to long-term, complement the moderate narrowing of the interest rate corridor to improve interest rate control mechanisms, and continue to focus on controlling the yield curve from a risk prevention perspective How to anticipate the direction of monetary policy within the year? Firstly, there is still downward pressure on bank interest spreads, while the policy demands to reduce the cost of social financing and stimulate economic demand are clear. It is expected that a new round of deposit benchmark interest rate cuts may follow, creating room for loan interest rate cuts. Secondly, if the Fed cuts interest rates in September, there is a possibility of another rate cut domestically, with the rate cut magnitude not lower than this time.
Currently, focus on two investment themes: Firstly, in the background of the expected decline in overall social return rates and broad interest rates, dividend strategies will still be attractive. It is recommended to focus on the five major state-owned banks with stable operations and high dividends. Secondly, banks with marginal improvement in fundamentals and comparative advantages in valuation, dividends, fundamentals, and trading aspects are recommended. Specifically, Yunnan Rural Commercial Bank (601077.SH) and high-quality city commercial banks with alpha in regional credit demand or key policy support, such as Chengdu Bank (601838.SH) and Hangzhou Bank (600926.SH).
Risk Warning: Economic recovery falls short of expectations; liquidity environment tightens more than expected; risks related to assumptions affecting the calculation results