<Earnings first take> China banking sector 1H22 results recap
1H22 earnings growth of most of the China banks under our coverage was in line with market expectation. Our key take-aways are:
- SOE banks delivered steady loan growth in 1H22. We saw weak credit demand, especially from the retail side in 1H22. SOE banks were less impacted than joint-stock banks in general
- Most banks saw 5-10bps of y-o-y NIM drop in 1H22, as impacted by 1) LPR cut; 2) structural change (e.g. higher corporate loan and discounted bill growth than retail loan growth); 3) increase in deposit costs with higher customer willingness in time deposit
- Fee income growth, especially the income from wealth management services, was impacted by the market volatility in 1H22. It showed -8 to 3% y-o-y change for most banks comparing with double digit growth in FY21
- Asset quality is overall stable. We see more asset deterioration from China property sector and retail loans, while that of corporate loans in most other industries were showing an improving trend. CBIRC reported China banking sector 2Q22 NPL ratio at 1.67%, -2bps q-o-q or -9bps y-o-y
Our view and outlook
- Expect the NIM declining trend in 2H22 to be marginally better than that in 1H22 with 1) expectation of retail loan recovery in 2H22; 2) banks’ further efforts in controlling funding costs. The NIM pressure may extend into FY23 with the repricing of mortgage with lower 5-yr LPR.
- Maintain our expectation of China loan growth of 11-12% y-o-y for FY22F, following 11% y-o-y growth in 7M22. The 5bps/15bps of 1yr/5yr LPR cut reflects a further loosening monetary policy to support the credit demand. We expect a better 2H22 loan growth than in 1H22, as most banks reported seeing a marginal recovery trend in Jul/Aug vs 2Q22
- Fee income growth would be weak in FY22F, but we believe it will still be one of the growth drivers for China banks in mid-long term
- Expect an overall stable asset quality to maintain in 2H22, while we shall still keep an eye on 1) China property sector exposure; and 2) potential impact from “deferred principal and interest repayment” policy in 2Q22
- Most of the banks are now trading at 0.2-0.4x FY23F P/B. The retail banks like CMB and PSBC has been oversold in recent months and trading at their 5-yr low now. Div yield at 6-11%. We see it as a buying opportunity now for the mid-to-long term upside, especially for those oversold and quality ones like CMB and PSBC.
- However, we maintain our neutral outlook for the rest of the year with the worries on delayed recovery in China property and economy. We expect the sector to see more upside only after seeing more clear signals of China economic recovery. The more defensive names (e.g. Big Fours) might have better performance in the short-run given they are more stable in the challenging environment.
Pls find the results recap of the banks under our coverage as below: