Consumption metrics tracker: No clear turn
- We track consumption-related metrics related to the financial sectors and see little sign at this point of time of a consumption turnaround.
- Monthly metrics tracked include mortgage prepayments, consumer asset quality and loan growth, plus household deposit growth and time deposit mix.
- We see 2024F & 2025F consumer loans lagging system loan growth under a scenario of negative household wealth effects persisting into 2025F.
- Maintain sector Neutral rating. Top picks: BOC, CCB, CMB and CITIC.
Still see no clear evidence of a turnaround in consumption metrics
We track consumption-related monthly metrics related to the financial sector and see little sign at this point of any meaningful consumption turnaround. Having said that, we think consumer credit quality of banks is still not a concern, based on monthly data on overdue loan formation for both mortgages and credit cards up to Nov 2023. With consumer loans (mortgages, credit cards and other consumer) likely to lag corporate loan growth, China’s state-owned-enterprise (SOE) banks could once again outperform their mid-sized retail bank focused peers in 2024F.
Monthly metrics tracked give high-frequency insight
Mortgage prepayments ratios are no longer falling and as of Nov 2023, have stabilised at a level that is 21% above 2020-2021 averages (Fig 3). As pointed out in Mortgage prepayments – What does it signal, dated 11 Oct 2022, this could be indicative of subdued consumer confidence. As of Nov 2023, mortgage credit quality is still not a concern, with only a slight uptrend in monthly <30 days overdue loans, based on data from residential mortgage-backed security (RMBS) reports (Fig 4). Credit card asset quality trends of banks are also not a concern, based on monthly credit card asset backed security (ABS) reports (Fig 5). Nov 2023 household time deposit mix continues to trend upwards (Fig 6), despite lower time deposit rates. Nov 2023 monthly household deposits flows remain above pre-pandemic averages (Fig 7) and there is little sign of a turnaround in either mortgage growth or non-mortgage consumer loan growth (Fig 9).
2024F bank loan quotas likely to again be driven by corporate loans
Consumer confidence has stabilised at levels that are materially lower than pre-pandemic averages, with Nov 2023 consumer confidence indices and sub-indices 27–42% below 2019 averages (Fig 12-13). With both mortgages and other consumer loans (including credit cards) growth likely to remain well below pre-pandemic levels, in our view, we see system loan growth in 2024F again being driven by corporate loan growth, especially via the big four banks (see Defensive appeal persisting in 2024F, dated 2 Jan 2024).
Retain sector Neutral rating; Top picks are BOC, CCB, CMB & CITIC
We value the China banks using a stress-test-adjusted GGM. Upside/downside risks: An improving/worsening Chinese economy, and better/worse NIM trends
