投资者应该如何为中资银行做准备

1、GlobalResearch16 April 2019China BanksHow should investors position for China banks? Will large banks catch up with the rally?Macro development supportive of valuations; JSBs to outperform large banks WeexpectmaterialisationofChinaspolicyeasingandprogressinUS-Chinatradetalks to support banks valuati

2、ons. However, banks could underperform the market as monetary easing would likely hurt NIM while other sectors should benefit more from easieraccesstocreditandlowerfinancingcosts.Weexpectstrongernear-termrevenue momentumforjoint-stockbanks(JSBs)andsomeregionalbanksduetosizeableNIM expansion in H218

3、and Ping An Bank remains our top A-share bank pick. We downgradeCMB-HtoNeutralonademandingvaluation,butmaintainBuyonCMB-A. Among large banks, we upgrade BOC to Buy, downgrade ABC to Neutral and remove CCB as a UBS Key Call (Figure 1).Medium-term outlook 1): downward pressure on NIM to persistAsChina

4、sGDPgrowthslowsinthenextfewyears,weexpectinterestratestoremain low in the medium-term. Combined with heightened deposit competition, we expect banks NIM to remain under pressure; the central banks push for further interest rate liberalisation will be another overhang on NIM. The convergence of China

5、s dual interestratesystems(erbank)willlikelysuppressbanksassetyields amid an easing environment.Medium-term outlook 2): asset quality stable after solid NPL clean-upWe maintain our view that the NPL cycle from here will be milder and more orderly. AsidefromlowerNPLformationduetotheeasing,recentprogr

6、essincleaningupNPLs (banks recognised Rmb7trn of NPLs and resolved over Rmb5trn since 2013 by our estimate) indicates the private sector has undergone a severe NPL credit cycle. In addition,bankshaveadoptedatighterNPLclassificationandbuiltupreserves.Long-term: will China banks re-rate from current l

7、ow valuations?Although a challenge, if China manages an orderly decline in GDP growth to a sustainablelevel,weenvisageaslowbutgradualre-ratingforthebanksgiventhedeep discounttoglobalvaluations.However,wealsoflagtheriskthatChinasleveragemay substantiallyriseagainonaggressivere-leveraging(e.g.highLGFV

8、debtsandashadow banking pick-up on the postponement of the asset management deadline) and the tetal fr mre cmmercal atial ervce” (rectves tat are n te atos interestsbutnotcommerciallyinthebanksinterests)guidanceforthebanks.Figure 1: Rating and price target change summaryBanksChinaEquitiesMay HYPERLI

9、NK mailto:may.yan BanksChinaEquities+852-29717157AlexZhou HYPERLINK mailto:alex-huanan.zhou +852-37124218Alex HYPERLINK mailto:alex.ye +852-37123594JulieHou HYPERLINK mailto:julie.hou julie.hou+86-213-8668871 RatingPricetarget (HK$)Share priceImpliedDividend EPSgrowth P/BV PE ROAE(New)(Old)(New)(Old

10、)(HK$)upsideyield2019E2020E2019E2020E2019E2020E2019E2020EBOCBuyNeutral4.603.603.7124%5.8%4.3%5.2%0.57x0.53x5.2x4.9x11.5%11.1%CCBBuyBuy8.308.806.9120%5.3%4.5%4.9%0.71x0.65x5.6x5.4x13.1%12.6%ICBCBuyBuy6.807.005.8516%5.1%4.1%4.6%0.72x0.66x5.8x5.6x13.0%12.4%BOCOMNeutralNeutral7.106.006.549%5.6%6.2%6.7%0

11、.60 x0.55x5.5x5.2x11.3%11.1%CMBNeutralBuy42.6035.6040.405%3.1%14.0%13.3%1.51x1.33x9.7x8.6x16.6%16.6%PSBCNeutralNeutral4.905.004.636%5.1%8.5%8.8%0.69x0.63x5.9x5.4x12.1%12.1%ABCNeutralBuy3.904.603.618%5.9%1.0%5.1%0.62x0.57x5.2x4.9x12.5%12.0%CQRCBNeutralNeutral4.804.904.712%5.2%5.0%7.3%0.51x0.47x4.2x3.

12、9x12.8%12.4%Huishang Huishang SellSell3.203.003.40-6%2.1%11.1%10.4%0.50 x0.44x3.8x3.4x13.9%13.5%UBS H-share coverage avg.4.8%6.5%7.4%0.71x0.65x5.7x5.3x13.0%12.6% HYPERLINK /investmentresearch /investmentresearchThisreporthasbeenpreparedbyUBSSecuritiesAsiaLimited. ANALYSTCERTIFICATIONANDREQUIREDDISCL

13、OSURESBEGIN ONPAGE59. UBSdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbe aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their in

14、vestment decision.ContentsBankstounderperformmarketonnarrowerNIMandbroadcrediteasing.4 HYPERLINK l _TOC_250008 Upgrade BOC to Buy on attractive valuation; downgrade ABC & CMB to NeutralduetoNIMheadwindsandwidevaluationpremium9 HYPERLINK l _TOC_250007 Whatsourmedium-termexpectationonNIMandNPLoutlook?

15、11 HYPERLINK l _TOC_250006 Whatsourlonger-termviewonbanksvaluation?15 HYPERLINK l _TOC_250005 Companypages18 HYPERLINK l _TOC_250004 BankofChina19KeyCall:ChinaConstructionBank26 HYPERLINK l _TOC_250003 BankofCommunications32 HYPERLINK l _TOC_250002 ChinaMerchantsBank38 HYPERLINK l _TOC_250001 ChinaM

16、erchantsBank-A45 HYPERLINK l _TOC_250000 Agricultural BankofChina51May HYPERLINK mailto:may.yan +852-29717157AlexZhou HYPERLINK mailto:alex-huanan.zhou +852-37124218Alex HYPERLINK mailto:alex.ye +852-37123594JulieHou HYPERLINK mailto:julie.hou julie.hou+86-213-8668871China Banks HUBS Research THESIS

17、 MAP a guide to our thinking and whats where in this reportMOST FAVOREDPing An Bank, BOC, CCB, LEAST FAVOREDHuishangPIVOTALQUESTIONSQ: Is MSE lending a national service for banks and what are theimplications?Following the regulators close oversight and guidance for banks to lower rates on inclusive

18、finance MSE loans, 18 national banks reportedly cut their average lending rates on the loans by 70bp to 6.23%, a loss-making rate by our estimate. We estimate a rate of 7-10% is necessary for bankstobreakevengiventheinherentchallengesoflendingtoMSEs.Indeed,MSElendingcanbe profitableasdemonstratedbyT

19、aizhouBankandTailongBanksMSE-centricbusinessmodels,but onlyifthecorrectpricesarecharged.Howevertheimmediateimpactofpricingcontrolonbankshas o far key een mma, as csve face SE las (te uect f rcg cotr) rereent only 2-5% of loan books. HYPERLINK /shared/d2CoAOeLi5G E eg reve: w sty s atal erve? 8 Q: Is

20、 rising household debt a risk for China banks?No.Webelievetheriskforhouseholdswithheavycredituseismanageableoverall,despiterelatively highmonthlydebtpayments.Webelieveriskforbanksismitigatedbytheirprudentcreditlinesand respondents rational borrowing plans. We think there is ample room for banks to g

21、row consumer creditandweexpectassetqualityofbanksconsumerloanbookstoremainbenign. HYPERLINK /shared/d246Gb0yKOM US vce ab se: s rsg ed veae a rsk to c/ ser fa? 9 UBSVIEWWeexpectbroadcreditgrowthtorecoverin2019butforChinabankstockstounderperform,driven bycontinuedpressureonNIMduetomonetaryeasing.Weth

22、inkJSBswithmaterialNIMexpansionin H218willdeliverstrongerrevenuemomentuminthenear-termandoutperformlargebankpeers.In themedium-term,wethinkNIMpressurewillpersistduetoChinasslowingeconomyandthecentral banks push for further interest rate liberalisation. However, we dont expect asset quality to be a m

23、ajorthreattoearningsfollowingsolidprogressinNPLclean-upinthepastfiveyears.EVIDENCEThedeclineinChinassinceQ318ininbanksNIM inH218,suchthatbanksmuchlessfromthelowerwhilemostJSBs NIMThisshouldhelpthemin2019. China banks have worth of NPLs in the past five years and Theyhavealsobuiltupprovisioninthepast

24、twoyears,atthelargeWHATSPRICEDIN?Trading at an average 0.7x forward P/BV vs. 13-14% ROE, China banks valuations appear inexpensive and are at a deep discount to the global average. We think the valuation still prices in concernsoverthelong-termsustainabilityofChinaseconomyandbankingsystem.Hence,ifCh

25、ina manages an orderly decline of GDP growth to a more sustainable level supported by moderate easing, we envisage a slow but gradual re-rating for the sector. We also flag risk that China may revert back to the debt-driven growth model, which would result in a substantial rise in macro-debt leverag

26、e and continue to suppress China bankvaluations.1.301.100.900.70China banks avg. one-year fwd P/BV Mar-12 Jul-12 Nov-12 Mar-13 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17 Mar-18 Jul-18 Nov-18 1-year forwardPBratioHisto

27、ricalavg. +1SD -1SDSource: Datastream, UBS1-year forwardPEratioHistorical avg. +1SD -1 SDBanks to underperform market on narrower NIM and broad credit easingBasedonrecentdataandbanksfeedbackduringtheearningsseason,weexpect broad credit growth to gradually trend up going forward, with full-year loan

28、growthpotentiallytoexceedcurrentguidanceespeciallyforlargeSOEbanks.As thegovernmentseasingpoliciesbegintomaterialisethisyear,weexpectbanksto see further pressure on NIM while other sectors should benefit more visibly from lower financing cost and easier access to credit. Hence, we think China bank s

29、tocks will likely underperform the market in the near term but may catch up with the rally into the late stage of the cycle.Within the sector, we expect to see stronger revenue momentum in joint-stock banks(JSB)thankstosignificantNIMexpansioninH218onthebackoflowerrates in the interbank market. This

30、should help them much more easily maintain YoY NIM increase in H119 compared to large banks, some of which already saw NIM decline in recent quarters. We downgrade ABC to Neutral in light of NIM headwinds, and upgrade BOC to Buy given the banks higher exposure to interbank funding and improvement in

31、 its deposit franchise. We also downgrade CMBfromBuytoNeutralgiventhesignificantvaluationpremiumtootherpeers.Will easing measures finally translate to rebound in broad credit growth in 2019? Yes, we think soOne of the key market debates last year was how China would strike a balance between its dele

32、veraging campaign and ensuring economic growth amid rising uncertainties. This was against the backdrop of the continuing decline in broad credit (i.e. adj. TSF) growth driven by contraction in off-balance-sheet financing itemsduetothecrackdownonshadowbankingactivitiessinceearly2017 HYPERLINK l _boo

33、kmark0 (Figure HYPERLINK l _bookmark0 2). In particular, credit growth maintained such slowing momentum in H218 despitethecentralbankspolicyshiftsincemid-2018with HYPERLINK /shared/d280JlStKmRGO moreflexibleexecution HYPERLINK /shared/d280JlStKmRGO on the new asset management product (AMP) rules and

34、 multiple RRR cuts. This created some concerns over Chinas monetary policy transmission effectiveness andwhetherthegovernmentwouldneedtocarryoutanothersignificantstimulus package to stabilise credit growth.A key debate last year is whether broad credit growth will rebound on Chinas easing policiesFi

35、gure2:Adj.TSFgrowthreachedhistoricallylowsin 2018,butweexpectittoreboundthisyearFigure 3: Historically, sentiment of loan officers has been a good indicator for broad credit growth23%21%19%17%15%13%11%9%7%Jan-12 Jun-12 Nov-12 Apr-13 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-

36、15 Mar-16 Aug-16 Jan-17 HYPERLINK /shared/d280JlStKmRGO Jun-17 Nov-17 Apr-18 Sep-18Feb-19Outstanding balance YoY growth80%70%60%50%40%30%20%10%0%-10%-20%80%60%40%20%0%-20%-40%-60%10.0%8.0%6.0%4.0%2.0%0.0%-2.0%-4.0%-6.0%-8.0%1Q103Q101Q103Q101Q113Q111Q123Q121Q133Q131Q143Q141Q153Q151Q163Q161Q173Q171Q18

37、3Q181Q19Rmb +FXloansAdj.TSFOff-B/Sfinancing(RHS)Corporate+LGbonds(RHS)Loanapproval-loandemand(IndexYoY)Credit impulse(RHS)Source: CEIC,UBSestimatesSource: CEIC, UBSestimatesLooking ahead, we think the easing measures launched by the government will likelytakeeffectin2019andwewilllikelyseebroadcredit

38、growthstabilisegoing forward.As HYPERLINK /shared/d2eEXrwhdM5 notedbyUBSeconomists,Chinasmacroeasingismostlyreflectedin creditexpansionandtheyexpectthegrowthofadjustedtotalsocialfinancing(adj. TSF) to rebound from 9.5% at end-2018 to 11.5% in 2019E. We think bank loan growth will stay largely stable

39、 with moderate upside, while most of the recovery willbecontributedbyhigherbondfinancingandstabilisationinoff-balance-sheet financing.Judgingfromcommunicationswithbankmanagementfollowingtheresultseason, we think banks credit underwriting willingness is edging up, although guidance given on full-year

40、 loan growth has remained largely unchanged compared to last year. This is consistent with the PBOCs sentiment survey on bankers, which suggests that banks loan approval tendency has caught up with loan demand in the past few quarters. Historically, the spread between the two indicators correlatescl

41、oselywithChinasbroadcreditexpansion HYPERLINK l _bookmark1 (Figure3)anditisalsoworth noting that the majority of off-balance-sheet financing and bond investments in Chinaareultimatelydrivenbythebanksratherthanotherfinancialinstitutions.On the demand side, quasi-fiscal spending will translate to high

42、er credit expansionIn terms of supply, banks are also turning more willing to lend more, especially the large banksFigure 4: Big 4s 2019 loan growth guidance given in briefings, NDRs and other meetingsICBCCCBABCBOCICBCCCBABCBOCFullyearloangrowthtarget Rmb1.16trn, 8%growthRmb100bn for financial inclu

43、sionMSE loans, already done Rmb50bnYTDRmb200bn for private enterprisesLoan growth target is flexible, depending on market in H219MSE loan growth may not slow in the next two quartersSource: Company dataTarget similar loan growth as in 2018Corporate loan growth will accelerate in 2019Infrastructure l

44、oans will be at least 10% than last yearMSEloangrowthwillmeetthe30% target; balance at Rmb600bn as of end-2018, already grown by Rmb100bn in2019Target similar loan growth as in 2018Eventual loan growth could be higher if there is strong demand in the economyMSE loans to grow by at least 30%Target si

45、milar loan growth as in 2018Corporate loan growth to exceed targets;hasbeenacceleratingsince Dec-2018Government has given guidanceto lend moreInadditiontothelikelypickupinvolumegrowth,theinterestrateenvironmenthas also shifted as result of the monetary easing. Rates in the interbank markethave alrea

46、dydeclined,especially3-monthSHIBOR,whichhasdecreasedbyover150bp since Q218 HYPERLINK l _bookmark2 (Figure 5). More importantly, front book loan rates also registered a declineinQ418exceptformortgageloans HYPERLINK l _bookmark3 (Figure6).Ifthistrendcontinues,lower rates may stimulate loan demand furt

47、her aswell.Interest rates have declined too, with loan rates beginning to soften in Q418Figure5:Marketrateshavealreadydeclinedinrecent quarters due to monetarylooseningFigure 6: Loan rates on the front books also began to soften in Q47.006.007.0004.007.0004.006.5003.006.0002.005.5005.0008.5008.0007.

48、500Front book loan rate1.00-4.500Jul-09 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 HYPERLINK l _bookmark2 Jul-18Jan-19Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-187-dayrepo(30dma)

49、3-monthSHIBOR10-yrCGByield Weightedavg.GeneralloansMortgagesSource:CEICSource: CEICHow would banks perform at this stage of the cycle?Given our view that broad credit growth will rebound this year, how would China banks perform at this stage of the easing cycle? In the near-term, we think the prospe

50、ct of economic stabilisation is positive for overall sentiment, which should helpmarketvaluationrecoverandgeneratepositivereturns.Infact,Chinabanks havegoneupby11%sincetheendofthelastyear.However,onarelativebasis the sector as a whole has underperformed the rest of the market by a large margin, as C

51、hina MSCI Index rallied by 19% during the same period. With the easing cycle materialising into higher broad credit growth in 2019, how the banking sector would perform matters a lot for investorallocation.Figure 7: Relative to the market, China banks performed differently in past easing cyclesHighe

52、r credit growth is positive for the economy and market sentiment overall, but banks have underperformed the market so far in201925.0%20.0%15.0%10.0%5.0%0.0%-5.0%-10.0% CreditimpulseChina banks vs. MSCI CN(RHS)Note:Wemeasurerelativeperformancebasedontotalreturnindices.Source:CEIC,Datastream,UBSestima

53、tesThereareanumberofhistoricalexperienceswecanlookatasreferences,asChina hashadthreemajorcrediteasingcyclesinthepastdecade(e.g.2008-09,2012-13 and 2015-16). However, as shown in HYPERLINK l _bookmark4 Figure 7, relative to the rest of the market Chinabanksperformeddifferentlyinthepastcycles.In2008-0

54、9and2012-13,we saw the sector underperform the market initially but catch up shortly after in the midst of faster credit expansion. In contrast, during 2015-16 the banking sector consistentlyunderperformedthewholemarketuntiltheendoftheeasingcycle.Obviouslytherearemanyreasonsbehindthedifferencesinrel

55、ativelyperformance, aseconomiccyclesarefarfromidentical.WethinkChinasdebtleveragewaslikely akeyfactor,asitwasstillrelativelymildinthefirsttwocycles,withtotaladj.TSF balance at around 120% of GDP in 2008 and 160% at the beginning of 2012 HYPERLINK l _bookmark5 (Figure8).Incontrast,bythemiddleof2015,t

56、heratiohasexceeded200%,which not only implies lower effectiveness of additional debt creation but also points to highersystemicrisksforthebankingsector,thussuppressingbankstockvaluation.China banks behaved differently in the past three cyclesIn 2008-09 and 2012-13, Chinas leverage ratio was still mo

57、derateFigure 8: Chinas debt leverage has risen significantly following the three credit easing cycles since 2008Figure 9: Interest rate environment is also one of the contributing factor to the performance difference240%220%200%180%160%140%120% 17.0%15.0%13.0%11.0%9.0%7.0%5.0%9.0%8.5%8.0%7.5%7.0%6.5

58、%6.0%5.5%5.0%4.5% 2.70%2.60%2.50%2.40%2.30%2.20%2.10%2.00%Adj.TSFtoGDPRealGDPYoY(RHS)Est. 1-yrloanrate1-yrloanBMRListed banks NIM(RHS)Source: CEIC,UBSestimatesSource: CEIC, Datastream, UBSestimatesIn addition, we think rate environments and the financial impact on banks also played a crucial role be

59、hind the difference between the cycles in 2012-13 and 2015-16.Asshownin HYPERLINK l _bookmark6 Figure9,inthe2012-13easingcyclethecentralbankonly cut the benchmark rates (BMR) twice by 56bp, while during 2015-16 it was lowered by a total of 125bp via five cuts within seven months. In both cases, the

60、lowerBMRimmediatelybroughtdownbanksfrontbookloanratesaswellastheir NIM. However, during the 2012-13 cycle banks NIM remained quite resilient, down by only 9bp from the peak in H211. In sharp contrast, during the 2015-16 cycle, banks NIM collapsed by 57bp as result of the loosened monetary policy, wh