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<Research>CICC: CN May Credit Growth Remains Weak, but NIM Pressure of CN Banks May Somewhat Ease
CICC wrote in a report that credit growth in China during May continued to be weak, and new loans in June are expected to be around RMB2.5 trillion to RMB2.8 trillion, slightly low...
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<Research>CICC: CN May Credit Growth Remains Weak, but NIM Pressure of CN Banks May Somewhat Ease
Recommend
99
Positive
63
Negative
105
 
 

CICC wrote in a report that credit growth in China during May continued to be weak, and new loans in June are expected to be around RMB2.5 trillion to RMB2.8 trillion, slightly lower than last year's. The broker also observed that new deposits of large banks decreased by RMB784.3 billion YoY, while new deposits of small and medium-sized banks increased by RMB484 billion YoY.

This is the second consecutive month for small banks to have more new deposits while large banks have less of that. The broker attributed this mainly to deposit rates of small and medium-sized banks being attractive again after the large banks settled their previous practices of manually increasing interest rates over the publicised level to woo customers.

According to the report, the YoY growth rate of loans and M2 in May were 9.3% and 7% respectively, both hitting record lows. CICC believed that the credit and money growth pivot may have already experienced a long-term downturn, mainly due to the weakening pulling force of urban investment and real estate, with debt resolution to be faced in the next 3 to 5 years. The focus of new credit investment has shifted to policy-supported areas such as high-tech manufacturing, green loans and inclusive loans.

During the process of credit growth decline, the pressure on banks' net interest margins (NIMs) may also be eased, but revenue may still be under pressure due to the decline in scale growth. While idle capital and other underutilised credit will be removed first, banks would need to pay attention to unintended damages made by localised credit contractions. As credit growth declines, the ability to address existing risks may also be reduced.

CICC believed that a lowering of loan prime rate (LPR) is possible in the next 1-2 months given the higher interest rate spread between existing and new mortgages. However, in order to maintain reasonable interest margins and profitability for banks, it is necessary to dynamically observe the cost-saving effects of manual interest rate adjustments after the settling of the manually increased interest rates, as the issuance of certificates of deposit (CDs) to compensate for the loss of deposits may offset some of the contributions.

Previously, there was some profit-taking pressure on stock prices after the realization of expectations regarding relaxed policies in the real estate sector. CICC suggested continuing to monitor the optimization effects of policies such as acquiring existing housing stock after the CCP Politburo meeting.

Considering the dividend and fundamentals, CICC recommended CM BANK (03968.HK)  -0.250 (-0.714%)    Short selling $151.90M; Ratio 39.613%   , BANKCOMM (03328.HK)  -0.090 (-1.538%)    Short selling $29.72M; Ratio 31.462%   and BANK OF CHINA (03988.HK)  -0.050 (-1.412%)    Short selling $329.43M; Ratio 37.676%   on high dividends, as well as MINSHENG BANK (01988.HK)  -0.010 (-0.352%)    Short selling $4.89M; Ratio 15.345%   , CZBANK (02016.HK)  -0.020 (-0.930%)    Short selling $576.21K; Ratio 2.412%   and YU RURAL COMMERCIAL BANK (601077.SH)  +0.020 (+0.380%)   for their expected improvement in asset quality.

(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2024-07-15 16:25.) (A Shares quote is delayed for at least 15 mins.)

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