Although the asset risk in key areas has been covered by the policy, there will still be local and structural risk exposure in the banking industry in 2024, which is mainly reflected in the continuous differentiation of the banking industry: large bank customers have better credit and are less affected by risk factors;The growth of small and medium-sized banks and the risks faced by real estate and local financing platforms have a great relationship with the regional economy and asset structure.
Contributing author Yang Qianwen.
Since the fourth quarter of 2023, from the issuance of special refinancing bonds to the implementation of the trillion-yuan special treasury bond plan, the increase in the amount of ** bond financing has become an important increment in social finance. The Politburo meeting in December analyzed and studied the economic work in 2024 and proposed that "the active fiscal policy should be moderately strengthened, and the quality and efficiency should be improved", which is an increase of "moderate" compared with the previous statement on the "afterburner and efficiency" of the fiscal policy.
Looking ahead to 2024, the fiscal side is expected to maintain a moderate state of strength, but not excessive expansion. The last Politburo meeting mentioned the requirement of "moderate" was in 2016, and the current meeting mentioned "moderate", and it is expected that the structure of fiscal expenditure will be more balanced.
On the other hand, monetary policy links the scale of social financing to the expected target of the first level, emphasizing that the scale of social financing matches the expected target of economic growth and the first level.
The ** Economic Work Conference held in December 2023 emphasized that the monetary policy in 2024 should "maintain reasonable and abundant liquidity, and the scale of social financing and the amount of money should match the expected target of economic growth and ** level", and compared with 2022, there are more expressions of "matching the expected level".
Since 2023, the recovery of demand has been relatively slow, the price index has continued to weaken, and the policy emphasizes that the growth of social finance and M2 in 2024 should also serve the price indicators well and further promote economic growth.
In 2024, exports are expected to rebound under the demand for overseas replenishment of inventories, which in turn will lead to an improvement in the income and expectations of small and medium-sized enterprises and residents. At present, overseas is at the bottom of the inventory cycle, and it may face the demand for replenishment in 2024. With the expansion of external demand, China's PPI is expected to rebound along with overseas replenishment demand.
Exports are a negative factor for economic growth in 2023, with the cumulative year-on-year pull of net exports to GDP at -07%。If overseas replenishment drives export growth in 2024, the demand of small and medium-sized enterprises is expected to rebound driven by exports, which in turn will drive the marginal recovery of retail credit demand such as personal business loans and personal consumption loans.
Although the demand for credit at the retail end is expected to rebound driven by the demand for overseas replenishment of inventory, the public side is still the main force of credit increment, especially under the development demand of "seeking progress while maintaining stability and promoting stability through progress", policy promotion plays a key role in investment, which is expected to drive demand in infrastructure and other fields.
Stabilizing interest margins has become a regulatory and industry consensus
Since 2023, the net interest margin of the banking industry has continued to narrow due to the decline in asset-side yields, and the regulator has emphasized maintaining reasonable profit margins for banks. In 2023, the net interest margin of banks will continue to narrow and the downward trend of loan interest rates will continue, and as of the end of the third quarter of 2023, the net interest margin of banks will be the lowest in history due to the double blow of the LPR interest rate on the asset side, the interest rate on the existing housing loan and the continuation of the fixed-term deposit trend on the liability side.
With the narrowing of bank interest margins and the decline in revenue and profit growth, regulators have also begun to emphasize that "commercial banks need to maintain reasonable profits and net interest margins to maintain sound operations and prevent financial risks".
The policy side has demands to reduce financing costs, the monetary policy emphasizes flexibility and moderation, and the end of overseas interest rate hikes makes room for domestic interest rate cuts, and the interest rate on the asset side is expected to be further reduced.
The general tone of the monetary policy for 2024 on the policy side is that "a prudent monetary policy should be flexible, moderate, precise and effective", and the ** Economic Work Conference put forward clear requirements for reducing financing costs for the first time since 2019, emphasizing "promoting a steady and moderate decline in comprehensive social financing costs". At the same time, considering that overseas interest rate hikes are nearing the end, the RMB exchange rate against the US dollar has stabilized recently, and the constraints of external pressure on interest rate cuts have gradually been lifted, the LPR interest rate may be further lowered in 2024 under the policy requirements of financial support entities, and the range is expected to be more than 10BP.
According to the analysis of Huafu**, factors such as repricing and the adjustment of the interest rate of the stock mortgage led to the narrowing of the interest margin on the asset side at the beginning of the year, and it is expected that the following factors will drive the yield on the asset side to decline in 2024, and the net interest margin may narrow by about 25bp in a comprehensive judgment.
First, the LPR will be lowered twice in 2023: the 1-year and 5-year LPR will be reduced by 20BP and 10BP respectively, which will lead to a unified repricing of some loans in early 2024. The second is the reduction of the interest rate of the existing housing loan: the policy of reducing the interest rate of the first set of housing loans in the stock was introduced in September, although the reduction of the interest rate of the existing housing loan has been completed in 2023, but because the time point of the reduction is the fourth quarter, the impact on the interest margin in 2023 will be diluted throughout the year, and the impact of the interest rate spread will be further manifested in 2024. Third, localized bonds: Recently, localized bonds have been moving non-stop, and the stock of high-priced political credit loans may be replaced by low-priced loans under the guidance of policies, which will have a certain impact on interest margins.
It can be seen from the three cuts in the deposit interest rate in 2023 that under the guidance of regulators, the reduction of deposit interest rates has become the general trend. In 2023, major state-owned banks lowered their deposit interest rates in June, September and December 2023, and other small and medium-sized banks followed suit.
The 2023 ** Economic Work Conference proposed to "promote the steady and moderate reduction of comprehensive social financing costs", and it is expected that reducing the financing costs of entities will be a long-term task in 2024 and the next few years. In the past two years, there is still room for further downward movement in the yield on the asset side of banks, and there is no basis for a significant recovery. Looking ahead, a reduction in deposit rates is imperative if banks are to maintain reasonable spreads and profits.
In 2023, there will be three rounds of cuts in the listed interest rates of fixed deposits of major state-owned banks, of which the listed interest rates of one-year fixed deposits will be reduced by 10bp in September and December respectively. The average proportion of deposits repriced by large state-owned banks within one year is 78%, so it is expected that the reduction in the listed deposit rate will be reflected in the 2024 statement soonerAmong them, the reduction of personal deposit interest rate is more obvious than that of corporate deposits, on the one hand, the yield of alternative product bank wealth management products has decreased significantly;On the other hand, institutional customers have strong bargaining power, and there is a certain rigidity in the interest rate of corporate deposits.
Entering 2023, the operating pressure of banks will rise, the interest rate cut on the asset side and the cost rate on the deposit side will rise against the trend, and the interest rate spread will fall to a new low since the statisticsAfter 2016, the operating income showed negative growth, and the intermediate business income decreased due to the impact of fee reduction and the marketThe debt repayment pressure of the real estate industry and local financing platforms has risen, and asset quality concerns are expected to increase.
According to the comprehensive analysis of Donghai**, the future pressure on interest margins will mainly be in the fourth quarter of 2023 and the first half of 2024: 1Credit assets were affected by the decline in LPR and the adjustment of interest rates on existing housing loans2.Financial investment was affected by the bond market in the second half of the year;3.The cost of deposits is affected by three deposit rate cuts;4.The financing cost of bonds is affected by the increase in the interest rate of interbank deposits. Potential influencing factors include:1The policy rate was cut further;2.Differentiation of the deposit structure;3.The yield of chemical bond projects fell.
From the credit side, the fourth quarter of 2023 and the first half of 2024 will be greatly affected, and the impact of the decline in LPR from July to August will last until the first half of 2024: measured by the four major banks, the interest margin will narrow by about 72bp, which will be reflected in a year, and the conservative rhythm is: the fourth quarter of 2023 and the first to third quarters of 2024 will narrow by 13bp、2.6bp、1.78bp、1.55bp。
The adjustment of the interest rate of the stock of housing loans in November (the average decline of the stock by 43bp) mainly affects the performance of the interest margin in the fourth quarter of 2023: measured by the four major banks, the one-time impact on the interest margin is about 8bp.
Since 2022, the deposit cost rate has bucked the trend, mainly due to the intensification of deposit regularization and the tight supply side of corporate deposits, and the deposit interest rate cut in response to changes in the deposit situation. The three interest rate cuts in 2023 (May agreement deposits, June demand + time deposits, and September time deposits) are expected to drive down the deposit cost ratio by 135bp, improving spreads by 104bp；Among them, the improvement of demand deposits to interest rate spreads is expected to be 18bp, which has been reflected in the second quarter, and the improvement in interest rate spreads on fixed deposits is expected to be 86bp。
In terms of cadence, fixed deposits are generally repriced only after maturity. Assuming that the repricing is completed within two years, the first small peak of repricing will be ushered in in the first half of 2024, and it is expected to improve by 05bp、1.8bp、1.3bp、0.7bp、0.5bp。
From the perspective of interbank liabilities, the increase in issuance interest rates slightly affected interest margins. Since September 2023, the weighted average issuance rate of interbank certificates of deposit has continued to rise, from 218% to 273%, meanwhile, commercial bank bond yields have also risen since September.
According to estimates, in the second half of 2023, the rise in bond interest rates on the liability side will lead to a decrease in interest rate spreads by 36bp, the digestion cycle is about half a year. At the same time, considering the positive impact of the downward interest rate on the interest margin on the liability side from April to July, it is expected that the comprehensive impact in the fourth quarter of 2023 will be small, and the interest rate spread in the first quarter of 2024 may be affected by 18bp negatively.
In 2022-2023, MLF will decline twice a year, each time by 10-15BP. In the context of the policy of promoting a steady and moderate reduction in the comprehensive cost of social financing, the possibility of further interest rate cuts in 2024 cannot be ruled out.
In terms of the debt of local financing platforms, we will carry out equal consultations with financing platforms, reasonably reduce debt costs, optimize the term structure, and ensure the implementation of financial support for local debt risk resolution through extension, repayment of old loans, replacement, etc., and may reduce the interest rates of lower-grade urban investment bonds and urban investment loans. Since the second half of 2023, the yield spread between AA and urban investment has narrowed from about 160BP to about 40BP. Taking 100bp as the benchmark for interest rate cuts, it can be calculated according to the asset information disclosed by joint-stock banks that the interest rate spread will be reduced by about 15bp。
No effort is spared to mitigate risks
In terms of asset quality, the non-performing loan ratio has been steadily declining since 2023, with a slight fluctuation in the concern ratio. As of the end of September, the average non-performing loan ratio of listed banks was 118%, a decrease of 3bp from the beginning of the year, of which the non-performing loan ratio of rural commercial banks decreased by 5bp, the largest decline. The overall non-performing loan ratio of commercial banks was 161%, down 2bp from the beginning of the year;Focus on the loan ratio of 219%, a decrease of 6bp from the beginning of the year, and an increase of 5bp in the third quarter, mainly related to the implementation of the "Measures for the Risk Classification of Financial Assets of Commercial Banks" on July 1.
Although the non-performing loan generation rate is significantly differentiated, the ability to offset risks has increased steadily. As of the end of September, the NPL generation ratio of listed banks was 0.94%, down 001 percentage point;Among them, the differentiation of different banks is obvious, and the non-performing loan generation rate of urban commercial banks decreased by 024 percentage points, the largest decline, while the non-performing loan generation rate of other banks has risen to varying degrees.
As of the end of September, the provision coverage ratio of listed banks was 315%, an increase of 1 percentage point from the beginning of the year. In terms of types, large state-owned banks, joint-stock banks, urban commercial banks, and rural commercial banks changed by 2 respectively19 percentage points, 116 percentage points, 591 percentage points, -601 percentage point, the provision coverage ratio of rural commercial banks has decreased.
In 2024, due to the impact of lagging exposure to retail risks, the increase in the retail non-performing loan ratio will lead to a slight increase in the non-performing loan ratio. Specifically, as of the end of June 2023, the retail non-performing loan ratio of listed banks increased by an average of 11bp year-on-year and 9bp month-on-month. On the one hand, residents' ability to repay loans is still weak, and risks are still exposedOn the other hand, retail demand is weak, resulting in slow growth in the denominator.
The risk volatility in the retail sector is mainly reflected in the increase in non-performing mortgages, but the overall risk is low. Since 2023, the non-performing ratio of personal mortgage loans of most banks has been rising, but it is still a low-risk asset for banks. Some banks, such as Postal Savings Bank, Industrial Bank, Ping An Bank and Bank of Suzhou, have already reduced the non-performing ratio of personal mortgage loans. However, judging from the trend of increasing retail loan non-performing ratio, it is expected that there will still be some risk exposure in 2024.
In terms of non-performing credit cards, as of the end of June 2023, according to the data disclosed by listed banks, the non-performing credit card rate increased by an average of 28bp year-on-year and 22bp month-on-month. However, there is a certain differentiation in the changes in the non-performing rates of business loans and consumer loans.
With the introduction of the follow-up real estate stabilization policy, it is expected that the overall real estate risk will be controllable in the future, and the real estate non-performing loan ratio of some listed banks has begun to decline. As of the end of June 2023, the average non-performing loan ratio of listed banks was 36%, an increase of 14bp from the beginning of the year. The non-performing loan ratio of many banks, such as Bank of China, Industrial Bank, Shanghai Pudong Development Bank, Ping An Bank, etc., has achieved a certain degree of reduction.
*For the first time, the Economic Work Conference included real estate risk in the scope of systemic risk, and it is in the first place, and it is expected that relevant support policies will be introduced in the future, and the follow-up risk is generally controllable. On December 14, Beijing and Shanghai successively issued new policies for the property market, including differential adjustment of the down payment ratio of the first and second homes, the reduction of mortgage interest rates, and the optimization of the identification standards for ordinary houses. In the future, with the introduction of more supportive policies, it is expected to boost the property market and alleviate real estate risks.
In July 2023, the Politburo meeting made it clear that a package of debt would be introduced. After that, the relevant departments have proposed financial support for local debt risk resolution - a new round of debt work has begun.
With the implementation of the replacement of existing debts, special refinancing bonds have been restarted. As of December 27, 2023, the total scale of refinancing bonds issued by provinces and cities is close to 14 trillion yuan, with an average interest rate of 29%, mainly used to replace local ** hidden debts. At present, the main body of the large issuance scale is Guizhou, Tianjin, Yunnan, etc., with the implementation of the local first-class stock debt replacement, the credit environment in the weakly qualified areas is expected to usher in an improvement.
In addition to issuing special refinancing bonds, policy banks and large state-owned banks have also participated in debt swaps to accelerate risk mitigation. In November 2023, a symposium of financial institutions organized by the central bank mentioned that "we will carry out equal consultations with financing platforms, and reasonably reduce debt costs and optimize the term structure through extension, repayment of old loans, and replacement". In the future, it is expected that large state-owned banks will participate in the debt, and replace high-interest debts in accordance with the principle of guaranteeing capital and small profits, with a maturity of no longer than 10 years, so as to smooth the pressure of repayment of principal and interest to the greatest extent.
As of June 2023, the proportion of banks' corporate real estate assets in total loans fell to about 11%, of which about 67%, investment + commitment about 22% and 2% for assets that do not bear credit risk4%。At the end of September, the balance of personal housing loans was 3842 trillion yuan, accounting for about 16 percent of loans4%。Overall, in 2023, the asset scale of the real estate industry will be basically stable.
In 2023, the non-performing slope of public real estate loans and personal housing loans will both slow down, and the risk judgment of the real estate industry in the disclosed information of some leading banks will be consistent with the trend of non-performing loans for corporate loans. Overall, asset quality remained stable and improved, and the relatively large write-off and disposal of non-performing loans from 2018 to 2020 left operational flexibility for credit costs.
On the other hand, the asset quality of local financing platforms is expected to benefit from the stability of the debt reduction measures through various ways of exchanging time for space, and the risk of the real estate industry is expected to slow down.
Changes in deposit structure and medium- and long-term rigidity
In the context of the macroeconomic slowdown, the growth of non-financial demand deposits is slow, and it is necessary to pay special attention to the changes in the structure of bank deposits and the impact on the cost of liabilities.
In recent years, the structure of bank deposits has been differentiated, with the following two characteristics: First, personal deposits are strong and corporate deposits are weak;Second, time deposits are strong and demand deposits are weak. The reason for this is that the slowdown in consumption and the decline in risk appetite have promoted the rapid growth of residents' fixed deposits.
In 2022, China's commercial residential sales fell by 4 compared to 20216 trillion yuan, of which personal housing mortgage loans fell by 860 billion yuan, according to which the decline in commercial housing sales in 2022 led to 374 trillion yuan of deposits were stranded in household deposit accounts.
On the other hand, during the downturn in the capital market in 2022 and the redemption of wealth management in the fourth quarter of 2022, residents' risk appetite declined, and financial assets returned to bank deposits from asset management products.
Consumption slowed down, residents did not return to corporate deposits, and commercial residential sales fell by 4% year-on-year in 20226 trillion yuan, assuming that all the sales proceeds flow into the corporate account, and the fixed and current deposits are distributed according to the proportion at the end of 2022, the corporate demand deposits will increase by 16 trillion yuan.
From January to October 2023, the completion of investment in other fixed assets increased by 289.9 billion yuan year-on-year, and the difference increased by 146.3 billion yuan year-on-year, which was 2 less than the same period in 202227 trillion yuan with 122 trillion yuan, the main impact will be reflected in 2023.
From a short-term perspective, it is unlikely that the real estate and financial markets will decline sharply again, and the probability of fixed deposits will accelerate againThe improvement of enterprise investment and household consumption has promoted the convergence of the growth rate difference between the twoIn the case of an improvement in the financial market, it will promote the narrowing of the growth gap between the two in one direction;The potential effect is that the increase in the deposit cost rate is expected to be significantly alleviated, which can improve social expectations, increase household income, stimulate potential consumption, expand profitable investment, and cultivate and expand new consumption.
From a medium- to long-term perspective, under the trend of slowing down leveraged consumption, new deposit activation momentum needs to be formed. The potential effect is that the rigidity of the deposit cost rate is still strong.
According to regulatory requirements, the growth of social finance and M2 should remain stable and sustainable. From the general benchmark, maintain reasonable and abundant liquidity, and keep the scale of social financing and the amount of money in line with the expected target of economic growth and levelEnhance the stability and sustainability of the growth of total credit, and keep the growth rate of monetary volume and social financing scale basically matching the growth rate of the nominal economy.
From the perspective of practical experience, in the process of economic growth, the growth rate of social finance and M2 is slightly higher than the nominal growth rate of GDPFrom 2022 to 2023, the scissors gap between the two will widen significantly.
Based on this, it is equally important to revitalize the stock and optimize the structure, strengthen balanced investment, connect the year-end and New Year holidays, and moderately smooth credit fluctuations. It is equally important to revitalize existing loans, improve the efficiency of existing loans, and optimize the investment direction of new loans to support economic growth. Looking forward to the growth of scale, the total growth will be stable, and the structure will be rebalanced.
From the perspective of aggregate, maintaining stable and sustainable growth is a policy demand, and the quantitative basis of aggregate is "economic growth rate of 4%-5% + * expected target of 2%-3% + moderate easing margin of 2%-3%". According to this, the growth rate of social finance in 2024 will be 952%, and the growth rate of RMB loans was 1014%。
From a structural point of view, revitalizing the stock requires the stock to increase and fallInclusive, green, and manufacturing credit slowed down at high levels;Fiscal policy will continue to exert force;Residential loans will improve slightly, and it is expected that the growth rate gap between M2, social finance and total bank assets will converge in 2024, and the trend consistency will increase.
Fragmentation in the banking sector continues
Under the policy requirements of high-quality development, the valuation of large state-owned banks will continue to increase in the future. Whether it is high-quality development or the implementation of industrial policies, it is inseparable from the support of state-owned assets. Large state-owned banks, which are widely involved in state-owned projects, are expected to benefit from this trend in the long run.
From a fundamental point of view, large state-owned banks have three competitive advantages: first, stable loan demand and stable long-term projects**;Second, the asset quality is healthy, the real estate risk burden is lighter, and the localized debt is the icing on the cakeThird, the revenue and profit growth is stable, and the current valuation has not fully absorbed the positive factor of high dividends.
In contrast, small and medium-sized banks need to pay more attention to the logic of credit base. For the first time, the Economic Work Conference included the requirement of "matching the expected target of the ** level" into the social finance and monetary objectives. Taking into account the need to raise prices, it is expected that a certain amount of credit will remain in 2024, and social financing will not be weak. The fiscal policy of "improving quality and efficiency" will also guide more funds to entities and reduce the idling of funds. In 2024, the linkage of monetary and fiscal resources and the "establishment before breaking" of the economy will help accelerate the repair of the fundamentals of small and medium-sized banks.
Although asset risks in key areas have been covered by the policy, banks will still have local and structural risk exposures in 2024. Especially in the case of capital shortage, some banks have limited room for manoeuvre. Risk exposure will put pressure on fundamentals, and asset quality will be a watershed for small and medium-sized banks.
From the perspective of banks themselves, the differentiation of the banking industry continues to deduce, and the credit of large bank customers is relatively good, and they are less affected by risk factorsThe growth of small and medium-sized banks and the risks faced by real estate and local financing platforms have a great relationship with the regional economy and asset structure.
As a rule of thumb, the performance of bank stocks is positively correlated with PMI and bond market yields, and the sector** has a strong correlation with macro logic. At present, the real estate industry has increased its active policies and accelerated the pace of financing platform bonds, which is of positive significance for future economic recovery, and the catalysis of macroeconomic improvement to the banking sector is worth paying attention to.