Cautiousness persisting across the board
- Jun 2023’s TSF and loans beat Bloomberg consensus forecasts. Corporate loan growth was still strong, with household loans recovering gradually.
- The sharp rise in the corporate time deposit mix persisted even as corporate loan growth remained strong, suggesting corporates’ reluctance to invest.
- Despite lower time deposit rates, the mix of time deposits for households continued to rise. We think this signals households’ cautiousness to spend.
- Reiterate sector Overweight rating. Top picks: CMB, PAB & BOC.
Bank of China
ADD, TP HK$3.50, HK$2.74 close
We like Bank of China’s (BOC) exposure to a rising US rate hike cycle via its HK subsidiary. We also like its inexpensive valuation (lowest FY23F P/BV ratio among the big four banks) and its high FY23F dividend yield of 9.0%.
China Merchants Bank
ADD, TP HK$70.70, HK$33.00 close
China Merchants Bank (CMB) is our top sector pick. We believe its FY22 ROE and better-than-peers net profit would be sustainable through to FY25F, driven by its robust retail banking operations. Helmed by a new bank president, CMB is set for faster ROE growth ahead which, in our view, could act as a re-rating catalyst.
Ping An Bank
ADD, TP Rmb18.30, Rmb11.21 close
We believe Ping An Bank (PAB) will be a key beneficiary once a meaningful recovery in consumption is underway in mainland China, thanks to its sizeable consumer loan portfolio. As such, we see its current low valuation of 0.5x FY24F P/BV as a buying opportunity.
Jun’s TSF and bank loans beat consensus after 2 months of misses
Jun 2023’s new total social financing (TSF) was Rmb4.2tr (Bloomberg consensus forecast: Rmb3.1tr) vs. Jun 2022’s Rmb5.2tr. Jun 2023’s new Rmb loans were Rmb3.1tr (Bloomberg consensus forecast: Rmb2.3tr) vs. Jun 2022’s Rmb2.8tr. Jun 2023’s corporate loan growth excluding bills was 15.5% yoy (Fig 1), 0.2% pts below the 12-year record high of 15.7% in Apr 2023 (Fig 8).
Corporate time deposits rose sharply with strong loan growth
Even though corporate loan growth was strong (Fig 8), we remain bearish about its actual effects of encouraging corporate investment confidence and stimulating business expansion. This is because a sizable portion of the loans advanced to corporates by the big four banks returned to these banks as time deposits. Both big four banks’ corporate time deposit mix and corporate time deposit yoy growth rate rose sharply in 2023 YTD (Fig 12; Fig 13). We think this signal corporates’ cautiousness and reluctance to invest.
Limited stimulus from deposit rate cuts
Monthly new household Rmb deposits yoy turned positive in Jun 2023, after being negative for two months. Household cautiousness is proving more persistent than we expected, especially compared to other countries. While deposit rates have been cut multiple times over the past year, this has not stopped a rising household time deposit mix (Fig 10; Fig 15). This contrasts with the experience in other countries. For example, in HK and Singapore, there is a clear positive correlation coefficient between time deposit mix and deposit rates (Fig 16; Fig 17). Meanwhile, households’ medium-to-long-term loan growth stayed low at 1.8% in Jun 2023. This was coupled with weak residential property transaction values, with yoy growth rates falling from 17% in Apr 2023 to 0% in May 2023.
Retain Overweight sector rating; top picks: CMB, PAB and BOC
Our sector OW rating (see Upgrading sector on fading concerns, dated 21 Feb 2023) is premised on attractive dividend yields and extensive buffers helping to limit downside EPS risks. Downside risks: a worsening economy and increased policy risks (see Positioning for the recovery, dated 3 Jan 2023).