Bank stocks stage a "dragon head raising" performance: Eight major guesses about China's banking industry in 2012
Looking back at the eight major guesses about the banking industry at the beginning of 2011, only the listing of city commercial banks and rural commercial banks deviated from expectations. Guesses one, two, five, and seven were quite reliable, while guesses three, four, and eight are currently in progress. Looking back at these eight guesses now adds more anticipation for the development of China's banking industry in 2012.
Profit growth of listed banks around 20%
Attention level: ★★★★☆
Expectation index: ★★★★★
In 2011, under the backdrop of restricted credit scale, listed banks maintained two consecutive years of high-speed growth through an increase in interest rate spreads. Multiple institutions predict that the profit growth of listed banks in 2011 will be over 30%. However, regarding this year's performance, the industry generally holds a conservative attitude. According to analysts' calculations, the net profit growth rate of listed banks next year may fall back to between 15% and 20%.
Ping An Securities recently released its investment strategy report for the banking industry in 2012, believing that under the background of policy fine-tuning and targeted easing, loan and deposit growth rates are expected to show an overall balanced rebound. The net interest margin of listed banks will fluctuate near the full-year level of 2011. Middle business will continue to develop rapidly. The earlier excessive tightening control policies will cause a mild asset quality deterioration cycle with an increase in non-performing loan balances. It is estimated that the average annual net profit growth rate of listed banks will fall from 31.3% in 2011 to 17.6% in 2012. Additionally, Ping An Securities believes that the possibility of additional financing needs beyond what has already been announced this year is very small.
CICC believes that due to the relaxation signal of monetary policy reducing banks' loan pricing capabilities, the slowdown in economic growth causing banks' risk preferences to decrease, the re-pricing and termization of deposits increasing deposit costs, and the reduction in market yields, the net interest margin will begin to narrow quarter by quarter starting from the second quarter this year, and the full-year average will be slightly lower than the 2011 level.
Moreover, based on CICC Fixed Income Group's optimistic judgment on inflation, CICC believes that interest rate cuts in the second half of the year are highly likely, expecting listed banks' profit growth in 2012 to be 14.6%. Affected by deposit constraints and high elasticity of net interest margins, the profit growth of shareholding banks will converge towards large banks. City commercial banks, benefiting from high capital adequacy ratios and low loan-to-deposit ratios, are expected to maintain profit growth at 18%. CICC expects the profit growth rate to reach 23% in the first quarter, which will be the peak for the whole year, then slowing down quarter by quarter.
CITIC Construction Securities believes that the growth rate of new loans in 2012 will increase to around 15%, with continued adjustment of credit structure, increased scale of SMEs, agriculture-related loans, and emerging industry loans. With rising deposit costs, banks' loan pricing capabilities decrease, the floating ratio of SME loan interest rates decreases, and due to ample liquidity, the yields of the money market, bills, and bond markets decrease, the net interest margin of the banking industry will peak and then decline, falling from 2.7% in 2011 to 2.6% in 2012. CITIC Construction Securities believes that the net income from fees and commissions of listed banks will grow by 40%-50% in 2012, contributing nearly 10% to performance growth, expecting the industry's net profit growth in 2012 to be 20%, with the highest net profit growth rate among medium-sized banks.
Reserve requirement ratio expected to be cut at least three times
Attention level: ★★★★★
Expectation index: ★★★★★
The continuous two-month net reduction in foreign exchange reserves; the central bank stopping issuance of 3-month central bank bills after six months; a net injection of 9 billion yuan in open market operations in one week; a series of signals at the end of 2011 have sparked endless speculation about the reserve requirement ratio (RRR) in 2012. In this speculation, "cut" has become the unified keyword. Differences lie in the extent of the cut, with the industry generally believing that the RRR will be cut at least three times throughout 2012.
Data published by the People's Bank of China shows that in November, the PBOC and financial institutions' foreign exchange reserves decreased by 27.9 billion yuan (4.4 billion USD), indicating continuous net outflows of foreign capital for the second month, reversing the trend of continuous inflows over the past few years.
Additionally, in the last few days of December 2011, the central bank suspended the issuance of 3-month central bank bills in the open market, the first time it had done so in six months. A net injection of 9 billion yuan in open market operations within one week was interpreted by the market as another release of easing signals, reopening the policy window for RRR cuts.
The Bank of China released a report titled "Economic and Financial Outlook for the First Quarter of 2012," pointing out that the RRR is expected to be cut at least twice in the first half of 2012. The likelihood of adjusting interest rates in the near future is not significant, and interest rates are expected to remain stable in the short term.
HSBC Global Research expressed that it expects the central bank to take decisive measures in the coming quarters, with the RRR being cut at least three more times in the next six months, with the next cut possibly occurring in the coming weeks.
Wu Xiaoling, Vice Chairman of the Finance and Economics Committee of the National People's Congress and former Deputy Governor of the People's Bank of China, believed that a slowdown in China's economic growth in 2012 is an inevitable trend, and she expects more use of RRR adjustment methods next year.
Guo Tianyong, professor at the School of Finance of Central University of Finance and Economics, recently stated on Weibo that the downward trend in foreign exchange reserves could continue for some time. Considering the Spring Festival factor and the significantly reduced maturity of funds in the open market at the beginning of next year, the central bank might cut the RRR again soon, and it is not excluded that the RRR could be reduced by 1% at once.
On January 8, the latest financial data published by the central bank showed that RMB loans increased by 7.47 trillion yuan in 2011. In December 2011, both RMB deposits and loans increased significantly. Analysts believe that the general time point for the universal RRR cut anticipated by the market may be postponed.
New credit scale approximately 8 trillion yuan
Attention level: ★★★★★
Expectation index: ★★★★★
The credit scale for 2012 should be one of the less suspenseful guesses among various conjectures. Both regulators and industry insiders have reached a consistent voice on this year's credit policy and scale.
At the recently concluded Central Economic Work Conference, overall requirements were made for this year's economic work: "Continue to implement an active fiscal policy and prudent monetary policy, maintaining the continuity and stability of macroeconomic policies, enhancing the relevance, flexibility, and foresight of regulation." The conference also pointed out that monetary policy should make timely and moderate pre-adjustments and fine-tuning according to economic operation conditions, comprehensively using various monetary policy tools to keep the total amount of money and credit reasonably growing and optimizing the credit structure.
Yan Qingmin, assistant chairman of the China Banking Regulatory Commission, recently stated that the scale of new loans in 2012 may be slightly higher than last year, but it is expected that the credit policy will not relax.
Xia Bin, member of the Monetary Policy Committee of the People's Bank of China, indicated that if the mainland economy grows by 8% in 2012, it is estimated that a prudent monetary policy will still be implemented. Compared to the monetary policies of 2009 and 2010, a prudent monetary policy is relatively tighter, but it is expected to maintain reasonable credit issuance.
"The new credit scale for next year will be approximately 8 trillion yuan. Considering various factors, maintaining a credit issuance growth of 13%-14% would be a relatively reasonable range," Zong Liang, director of the International Finance Research Institute of the Bank of China and deputy general manager of the Strategic Management Department, previously told the Securities Daily.
Anxin Securities believes that the shift in monetary policy from "controlling liquidity as the main valve" to "maintaining the reasonable growth of the total amount of money and credit" itself signifies a substantial change in the government's attitude. This means that the policy environment faced by bank credit will be better than this year at least.
Shen Jianguang, chief economist of Mizuho Securities Greater China Region, expressed that specifically in implementation, it is expected that the monetary policy next year will return to neutrality in operations. It is estimated that the M2 target next year will be between 14% and 15%, with new loans exceeding 8 trillion yuan.
Sheng Hongqing, chief macro analyst of Everbright Bank (601818), also expects that new loans next year may be around 8 trillion yuan.
The recently released report by the Financial Research Center of Bank of Communications (601328) also expects the total amount of new loans in 2012 to be between 8 trillion and 8.5 trillion yuan, with a year-on-year growth of around 15%.
Bank of Communications believes that under the condition that economic growth will not drastically decline, loan demand in 2012 will still be maintained at a certain level. The report analyzed four reasons for the sustained growth of loan demand, including infrastructure construction in central and western regions, affordable housing construction, which will bring a certain scale of loan demand; actual consumption growth will increase next year, driving corresponding loan demand; regulatory authorities strengthening supervision on "shadow banks", transferring off-balance-sheet financing to on-balance-sheet, leading part of the financing demand to transfer to bank credit; further strengthening credit support for small enterprises, agriculture, and strategic emerging industries.
Urban commercial banks list
Attention level: ★★★★☆
Expectation index: ★★★★★
After a year of high enthusiasm but little accomplishment, entering 2012, although the path to listing for urban commercial banks is filled with uncertainties, the chances of solving the issue will greatly increase.
After years of development, the operations of China's urban commercial banks have become increasingly standardized, with stable and steady growth in performance. Currently, the total profit of urban commercial banks approaches 90 billion yuan, which is 16 times that of 2003.
However, inconsistent with their own development, since the concentrated listing of Beijing Bank (601169), Nanjing Bank (601009), and Ningbo Bank (002142) in 2007, more than four years have passed without any appearance of urban commercial banks in the A-share market. As difficulties in small enterprise financing have emerged this year, urban commercial banks, with their background of supporting local small and medium-sized enterprises, have also welcomed new opportunities for listing.
At the recently held Ninth SME Financing Forum, Zhang Haichuan, director of the Supervision Department II of the CBRC, revealed to reporters that currently, urban commercial banks generally have good operating conditions and credit risk control indicators, and multiple urban commercial banks meet the listing operational indicators. "So far, all the listing applications reported to us that meet the standards, we will agree."
From the perspective of their own business development, urban commercial banks have a natural advantage in serving local small enterprises. Facts have proven that urban commercial banks have continuously developed steadily in recent years, playing a huge role in supporting the development of micro and small enterprises. So far, the balance of small enterprise loans in the national urban commercial banking system amounts to 1.38 trillion yuan, accounting for 46.8% of all urban commercial bank enterprise loans. The growth rate of small enterprise loans by urban commercial banks this year has increased by 21.82% compared to the beginning of the year, which is 5.66% higher than the average growth rate of all loans.
Public statements by CBRC officials supporting the listing of urban commercial banks have given hope to multiple urban commercial banks that have been lingering outside the A-share market for a long time. However, whether the A-share market will truly see the presence of urban commercial banks in 2012 still requires consideration of multiple factors. First, there still exists uneven development among urban commercial banks with severe homogenization. Whether the market environment supports such listings is another factor to consider. Second, the employee stock ownership issue of unlisted urban commercial banks is another hurdle that cannot be avoided. In recent years, many urban commercial banks have increased their capital to achieve the purpose of lowering the proportion of employee stock ownership. Moreover, the market environment is another factor constraining the successful IPO of urban commercial banks.
High growth in micro-enterprise loans
Attention level: ★★★★☆
Expectation index: ★★★★★
From being neglected for many years to becoming the favored choice of all banks, small and micro-enterprise loan businesses have become an important breakthrough point for banks' corporate loans in 2012. Analysts generally expect that banks will further increase the issuance of micro-enterprise loans with higher interest rates this year.
According to the latest monetary policy implementation report by the central bank, the proportion of new loans to small and medium-sized enterprises in the first three quarters of 2011 accounted for as high as 38% of the total increment, thus driving the proportion of floating loans from 49.2% at the beginning of the year to 67.2%. CITIC Securities (600030) believes that the proportion of new loans to small and medium-sized enterprises in 2012 will exceed 40%, with loan yields either flat or slightly higher compared to 2011. Banks with higher pressure on the loan-to-deposit ratio will continue to apply for small enterprise financial bond issuance quotas. On the other hand, the yield on large enterprise loans may decline compared to 2011, mainly due to weakened pricing power brought by economic downturns.
Since the second half of 2011, from the central government to regulatory agencies, policies encouraging greater financial support for micro-enterprises have been密集ly issued. Recently, with the completion of the issuance of 30 billion yuan in financial bonds by Industrial Bank (601166) and the approval of 50 billion yuan in financial bonds by Minsheng Bank (600016), the issuance of micro-enterprise financial bonds has officially begun. Analysts generally expect that this will help improve the liquidity of small and medium-sized enterprises to a certain extent. Statistics show that so far, 12 banks have submitted applications for micro-enterprise financial bonds, with a scale approaching 300 billion yuan.
In addition to policy inclinations, many banks have also strategically positioned micro-enterprises as the blue ocean for future development. Guangfa Bank recently stated that in 2012, the bank will allocate 70% of its corporate credit resources specifically for small and medium-sized enterprises, with no less than 60% of credit resources dedicated to supporting the development of micro-enterprises.
China Merchants Securities (600999) believes that considering the current tight deposit resource environment, issuing small enterprise special financial bonds is more beneficial for improving banks' own income levels. Micro-enterprise loans have high returns, occupy less capital, and assuming a one-year micro-enterprise loan rate floats 30% above the benchmark rate, the corresponding spread for micro-enterprise financial bonds would be 4%. According to research by China Merchants Securities, the actual floating rate of micro-enterprise loans is much higher than 30%. Therefore, the actual spread of micro-enterprise loans can reach even higher levels. Issuing micro-enterprise special financial bonds helps improve banks' net interest margin and net spread.
Ping An Securities believes that in 2012, some banks will benefit from targeted easing for small and medium-sized enterprises, showing loan growth recovery greater than peers. Some banks will maintain the upward trend of net interest margins due to asset restructuring, renewed expansion momentum in small and medium-sized enterprise businesses, or advantages in deposit cost.
Slower growth in bank wealth management issuance
Attention level: ★★★★☆
Expectation index: ★★★★☆
After experiencing a two-year issuance boom, the market share of bank wealth management products has far exceeded that of funds and securities collective wealth management, dominating the wealth management industry. Statistics show that as of December 31, 2011, a total of 20,840 wealth management products have been issued since the beginning of the year, more than doubling the total issuance of the previous year; the average maximum expected yield was 4.36%, exceeding the one-year fixed deposit interest rate by 0.86 percentage points. However, analysts believe that the growth rate of bank wealth management product issuance in 2012 will slow down, and the average yield of products will be lower than last year.
In 2011, against the backdrop of high inflation and negative deposit interest rates, bank wealth management products offering relatively higher returns naturally received enthusiastic attention from investors. Meanwhile, banks issued a large number of wealth management products to alleviate the pressure of deposit outflows and meet the loan-to-deposit ratio requirements. However, every coin has two sides. As the issuance of wealth management products surged, risks hidden in the asset management operation model of commercial banks gradually surfaced, drawing the close attention of regulators.
With the issuance of the Measures for the Administration of Commercial Bank Wealth Management Products (Draft for Comments) by the CBRC in the second half of 2011, the six models involving entrusted loans, trust transfers, credit asset transfers, regulatory arbitrage notes, high-interest deposit solicitation, and interbank cooperation in the current bank wealth management asset pool were defined as non-compliant, and ultra-short-term products with maturities of less than one month were banned. This led to a certain degree of standardization in the high-speed issuance of bank wealth management products since 2011.
Statistics show that with the introduction of regulatory standardizations, the issuance of short-term bank wealth management products has dropped sharply recently. Data provided by Shengshi Puyi shows that in October 2011, the issuance volume of products with maturities of less than one month fell, decreasing by 235 units month-on-month, with the proportion dropping from 35.76% in September to 26.92%; in November, the issuance volume of products with maturities of less than one month continued to drop sharply month-on-month, decreasing by 133 units, with the proportion being 15.54%.
Analysts believe that 2012 will be a critical year for the bank wealth management market. Under stricter regulations, the CPI retreat, the improvement of negative deposit interest rates, and the expectation that the credit environment in 2012 will be better than in 2011, the expansion speed of the bank wealth management market may be smaller than in 2011, and the average yield of wealth management products may also be lower than last year. The differentiation of businesses among various banks will also become more pronounced.
Banks can withstand a 30% drop in house prices
Attention level: ★★★★☆
Expectation index: ★★★★★
As the country continues to advance its real estate control policies, questions arise: Can banks withstand the risks brought by real estate control in 2012? Will the regulation of the real estate market adversely affect the profitability of commercial banks?
Interviewing multiple industry insiders indicates that the country's real estate control will continue this year, and whether it is real estate loans or individual loans, they will both maintain a relatively stable state. For banks, neither risk nor profitability will be significantly affected.
The CBRC's "Operation Report of China's Banking Industry (Third Quarter 2011)" published in November 2011 stated that in response to the current situation in the real estate market, the CBRC required banks to closely monitor changes in real estate loan risks. It also pointed out that the added real estate loans in the third quarter saw their first negative growth month-on-month.
National Bureau of Statistics data released on December 18, 2011, showed that among the 70 large and medium-sized cities, in November, the new residential property prices in 49 cities fell month-on-month, increasing by 15 cities compared to the previous month. The new home prices in first-tier cities fell across the board month-on-month, with Beijing, Shanghai, Guangzhou, and Shenzhen falling by 0.4%, 0.4%, 0.3%, and 0.3% respectively in the same month. In November, the second-hand home prices in 51 cities fell month-on-month, accounting for 73% of all 70 large and medium-sized cities. Experts believe that the scope of national housing price declines expanded in November, and the regulatory effect became increasingly evident.
According to reports, the latest December 2011 hundred-city price index from the China Index Academy showed that the hundred