PSBC relies on China Post’s network to absorb deposits and pays agency fee to China Post accordingly. The average fee rate was 1.29% in FY21. It has met the benchmark for fee rate adjustment (Big Four Banks NIM<1.87%) in 1H22 and has announced fee rate adjustments today.
The fee rates before and after adjustment is as below:
In the future, fee rate will be adjusted if Big Four Banks NIM > 2.68% or < 1.64%
Our view
The positive impacts will be from two aspects: 1) a lower agency fee expense; and 2) lower funding costs with potential structural change.
Using FY21 deposit as baseline for estimation, FY21 deposit agency fee would drop from Rmb 93.4bn to c.Rmb 92.4bn. The decline expense of c.Rmb 1bn accounts for c. 1.2% of FY21 PBT. The average fee rate would drop from 1.29% to 1.27%.
The new fee rate increases the agency fee to low-costs demand and 1-yr time deposits, while discourages long-term time deposits which has higher funding costs for banks. We expect the adjusted fee rate to help PSBC to further control its funding costs. Using the FY21’s deposit balance and the latest deposit rate for estimation, the funding costs would drop by 3bps and NIM to increase by 2.8bps if the percentage of demand and 1-yr deposits increases by 1ppt each and that of 2/3yr time deposit drop by 1ppt each.
Though PSBC has met its benchmark of fee rate adjustment in 1H22, there’s no clear timeline for the adjustment previously. We see the positive impacts not yet in price, especially when it is trading at 0.5x FY23F P/B, or around 2SD below its 5-yr average.
We currently rate BUY with TP at HKD 7.4 on the counter. It remains as one of our top picks for the mid-long term.
