CITIC Securities: It is expected that the bank's Q1 performance may be a relatively low point in the whole year, waiting for the performance to warm

Zhitong Financial APP learned that CITIC Securities released a research report saying that it had disclosed a quarterly report showing that the operating prosperity of listed banks in 2024Q1 was weak, and the growth rate of revenue and profit remained low. From the perspective of operating factors, in addition to the performance of the investment business, which actively supported the revenue, the net interest business and the fee business were still at a low level, but the stable asset quality helped to make up for profit. The bank expects that the bank's performance in the first quarter may be a relatively low point in the whole year, and while waiting for the performance to warm, it can continue to pay attention to the market's demand for the allocation of dividend varieties.

The main views of CITIC Securities are as follows:

Matters:

Some listed banks released their quarterly reports this week, and 22 banks have disclosed their results for the first quarter of 2024, including 1 large state-owned bank, 2 joint-stock banks, 11 urban commercial banks, and 8 rural commercial banks. Overseas, on April 26, US time, the Federal Deposit Insurance Corporation (FDIC) announced that the Pennsylvania Bank Securities Regulatory Department closed the Philadelphia-headquartered Republic Bank.

Overall performance: The business boom is low, and the performance is significantly differentiated. According to the first quarter results of 22 domestic banks:

1) The growth rate of performance in the first quarter remained low. In 2024Q1, the total year-on-year growth rate of operating income and net profit attributable to the parent company was +0.3%/+2.5% respectively (-1.7%/+0.0% for the whole year of 2023), and the performance growth rate converged.

2) The revenue side and the profit side are both greatly differentiated. The year-on-year growth rate of revenue in 2024Q1 ranged from [-14.0%, +15.3%], and the year-on-year growth rate of revenue of China's state-owned banks/joint-stock banks/urban commercial banks/rural commercial banks was 0.0%/-4.0%/+4.8%/+3.8% respectively, and the year-on-year growth rate of net profit attributable to the parent company in the current quarter was [-10.8%, 21.1%], and the year-on-year growth rates of net profit attributable to the parent company of Chinese state-owned banks/joint-stock banks/urban commercial banks/rural commercial banks were +1.4%/-1.1%/+8.3%/-0.5% respectively. On the whole, the revenue growth momentum of state-owned banks is weak, and some high-quality regional banks still maintain a high degree of business prosperity.

Assets and liabilities: The pace of balance sheet expansion slowed down, and interest margins continued to decline.

Based on the data of 22 banks that have disclosed their quarterly reports, we calculate that the year-on-year growth rate of net interest income in 24Q1 is -3.9%.

1) Asset growth has converged, and credit supply has slowed down. At the end of 2024Q1, the total assets of the 22 banks were +2.7% year-on-year, with a year-on-year growth rate of -2.3pcts from 2023Q1, and their loans were +3.5% from the end of the previous year, with a year-on-year growth rate of -1.5pcts from 2023Q1. Since the beginning of the year, the growth rate of assets and credit has converged compared with the same period last year, on the one hand, because of the high base of investment catalyzed by the policy in the same period last year, and on the other hand, the central bank mentioned that it "pays more attention to the stable pace of credit delivery", guiding banks to iron out seasonal credit fluctuations.

2) Debt growth was steady, and deposit momentum declined. At the end of 2024Q1, the total liabilities of the 22 banks were +2.7% year-on-year and -2.5pcts year-on-year compared with 2023Q1, and deposits were +2.6% year-on-year and -3.7pcts year-on-year compared with 2023Q1. Since the beginning of the year, the growth rate of deposits has decreased significantly compared with the same period last year, mainly due to the high base of deposit growth brought about by the wave of wealth management redemptions in the same period last year.

3) Interest margin continued to decline: A total of 11 banks disclosed their net interest margin in the first quarter, and the average net interest margin of the relevant banks in the first quarter was 1.65%, a decrease of 14bps compared with the interest margin of last year, mainly affected by the reduction of existing mortgage interest rates and the decline in market interest rates.

Non-interest business: The investment business performed well, and the margin of decline in the middle income narrowed. According to the data of 22 banks that have disclosed their first quarterly reports:

1) The performance of the investment business actively supported the revenue. In 2024Q1, "investment income + fair value change profit and loss" was +37.5% year-on-year (+36% year-on-year for the whole year of 2023), continuing the high boom trend since last year, reflecting the positive performance of the investment business of listed banks.

2) The mid-income business still needs to be repaired, but the decline in revenue is narrower than that in 2023: the year-on-year growth rate of net fee and commission income in 2024Q1 is -12.6%, +4.4pcts year-on-year compared with the year-on-year growth rate of 2023.

Asset quality: Asset quality is stable and improving, and the ability to offset remains stable. According to the data of 22 banks that have disclosed their first quarterly reports:

1) Non-performing loan ratio remained stable: The average non-performing loan ratio of the 22 banks at the end of Q1 2024 was 1.19%, unchanged from the beginning of the year. Among the 22 banks, a total of 18 banks had the same or improved non-performing loan ratio from the beginning of the year, and only 4 banks had increased their non-performing loan ratio from the beginning of the year.

2) The provision level remained stable: At the end of Q1 2024, the average provision coverage ratio of the 22 banks was 339.4%, down 4.1pcts from the beginning of the year, and the average provision-to-loan ratio was 3.53%, down 0.05pct from the beginning of the year.

Overseas, the regulator closed the Republic Bank of the United States, and small and medium-sized banks in the United States still face the possibility of asset quality fluctuations.

1) Fulton Bank will assume the majority of its assets and liabilities. According to the FDIC's website, the Pennsylvania Bank Securities Regulatory Department shut down Philadelphia-based Republic Bank of America and appointed the FDIC as receiver, and the FDIC reached an agreement with Fulton Bank that would assume most of Republic Bank's assets and deposits. According to Federal Reserve data, as of the end of 2023, Republic Bank of the United States has assets of about $5.9 billion, ranking 211th among commercial banks in the United States in terms of asset size. In our view, the closure of Republic Bank was mainly affected by the weakening of the quality of commercial real estate loans in the United States, which accounted for 30.2% at the end of the quarter, according to the 22Q3 financial report disclosure (the company has never released a full financial report since).

2) U.S. small and medium-sized banks still face the possibility of asset quality volatility. Affected by the high interest rate environment and the rising vacancy rate, the value of commercial real estate has declined rapidly, and the asset quality of commercial real estate loans of small and medium-sized banks in the United States has fluctuated. According to Cohen & Steers data, as of the end of May 2023, the ratio of commercial real estate loans to assets of small and medium-sized banks with assets between $1 billion and $1 billion and $10 billion reached 24.3% and 18.3% respectively, while their assets accounted for only 9.7% and 4.6% of the assets of the U.S. banking industry, respectively. We expect that individual small and medium-sized US banks will still have the risk of asset quality volatility, but considering their relatively small total asset size, we expect that the probability of systemic financial risk is small.

Risk factors:

The macroeconomic growth rate has declined sharply, the asset quality of banks has deteriorated more than expected, the regulatory and industrial policies have changed more than expected, the regional economic boom has declined, and the implementation of the development strategies of various companies has fallen short of expectations.

Investment Views: The economy is low, the quality is stable.

Domestic banks have disclosed a quarterly report showing that the operating prosperity of listed banks in 2024Q1 is weak, and the growth rate of revenue and profit remains low. From the perspective of operating factors, in addition to the performance of the investment business, which actively supported the revenue, the net interest business and the fee business were still at a low level, but the stable asset quality helped to make up for profit. We expect that the bank's performance in the first quarter may be a relatively low point in the whole year, and we can continue to pay attention to the market's demand for the allocation of dividend varieties while waiting for the performance to improve. Based on the pace of economic recovery and the performance of macro finance, the first of the three progressive main lines proposed in our annual strategy "Banking Industry 2024 Investment Strategy - Expected Repair, Bottom Allocation" (2023-12-27) is still being interpreted, that is, we expect the short-term market style to still prefer the dividend strategy.