2012年中国银行业分析展望报告.pdf

deutsche bank markets research asia china banking/finance banks industry chinese banks - 2012 outlook date 17 january 2012 industry update policy turnaround to support profit growth; upgrading to overweight upgrading sector rating to overweight; buy large banks _ deutsche bank ag/hong kong all prices are those current at the end of the previous trading session unless otherwise indicated. prices are sourced from local exchanges via reuters, bloomberg and other vendors. data is sourced from deutsche bank and subject companies. deutsche bank does and seeks to do business with companies covered in its research reports. thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors should consider this report as only a single factor in making their investment decision. disclosures and analyst certifications are located in appendix 1. mica(p) 146/04/2011. tracy yu research analyst (+852) 2203 6191 judy zhang research analyst (+852) 2203 6193 top picks icbc (1398.hk),hkd5.15 buy agri. bank of china (1288.hk),hkd3.60 buy companies featured icbc (1398.hk),hkd5.15 buy china construction bank (0939.hk),hkd5.73buy agri. bank of china (1288.hk),hkd3.60 buy bank of china (3988.hk),hkd3.16 buy bank of communications (3328.hk),hkd5.78hold china merchants bank-h (3968.hk),hkd16.88 hold china citic bank (0998.hk),hkd4.66 hold china minsheng bank (1988.hk),hkd6.99 hold chongqing rural bank (3618.hk),hkd4.64 buy shanghai pudong bank (600000.ss),cny8.97buy industrial bank (601166.ss),cny13.32 buy china everbright bank (601818.ss),cny2.91hold shenzhen dev bank (000001.sz),cny15.78 buy bank of beijing (601169.ss),cny9.66 hold bank of nanjing (601009.ss),cny9.26 buy bank of ningbo (002142.sz),cny9.27 sell this report changes ratings, target prices, and/or estimates for several this report changes ratings, target prices, and/or estimates for several c companies under coverage. for a ompanies under coverage. for a d detailed listing of these changes, see figure 1 on page 4. etailed listing of these changes, see figure 1 on page 4. we believe policy on banks has started to relax visibly, in areas ranging from capital, liquidity, loan growth, interest rate deregulation and lgfv loans to npl recognition. in light of a better policy environment, we upgrade the net profit forecast of the h-share listed banks by 39% and 29% for this and next year, on lower bad debt charges of 65bps (from 140bps) and raise target prices by 19.2%. we expect npat growth of 13.9% to rmb969bn (vs.15% contraction) in fy2012, and 10% in fy2013. we upgrade our sector rating from neutral to overweight. we prefer large banks, with icbc and abc as our top picks. policy relaxation: whats new and why does it make a significant difference? we have confirmed with our industry contacts that there have been three positive policy changes, as publicly discussed. these include (1) deferral of the implementation of the new capital adequacy rules (in particular, target tier 1 ratio of 9.5% for sib by 2013 and 8.5% for non-sib by 2015). we expect the new rules to be made more aligned with basel 3, which requires banks to adopt higher overall capital requirements from 2016; (2) an accelerated resolution of lgfv loans including the rolling over of loans. we estimate that around rmb113bn and rmb68bn of potential npls for the h-share listed banks have been respectively resolved and rolled over in 2011. this explains 75% of our 2012 earnings upgrade. (3) a higher loan quota of rmb8tr for 2012, a bigger policy tolerance for banks that operate on a loan/deposit ratio (ldr) higher than 75% temporarily (although the regulatory limit of 75% on ldr will remain unchanged), and a more controlled pace of deposit rate deregulation. off-b/s wealth management products (wmp) we upgrade cmb from sell to hold and spdb from hold to buy. nevertheless, we see bigger risks for msb, ceb, cncb and bonb, which are operating on higher ldr, with heavy reliance on corporate deposits and higher exposure to sme. this is because we expect most business mismatch risks for banks to be manifested in slowing system deposits. in 2011, corporate deposits fell rmb109bn, compared to the average growth of rmb4.1tr per year in 2007- 2010, thus putting enormous pressure on real estate developers, construction companies, and the policy-protected sme. 513 deutsche bank 17 january 2012 banks chinese banks - 2012 outlook markets research page 2 deutsche bank ag/hong kong table of contents investment summary 3investment summary 3 focusing on policy relaxation; upgrading sector rating to overweight. 3 lgfv loans resolution . 5lgfv loans resolution . 5 key summary of lgfv loans by nao 5 progress of npl resolution in 2011 6 deposit generation, wealth management products upgrading sector rating to overweight we believe 2012 will be a watershed year for positive policy changes on chinese banks, rather than asset quality being the key issue as we previously highlighted. we are now seeing a much stronger-than-expected policy response to slowing sector deposits, which have resulted from cannibalization by the shadow banking system, the sharp decline in the money multiple under the record-high reserve requirements and, more recently, capital outflows. slowing deposit growth was one of our key concerns in 2011, as it reflected the business mismatch risks of banks, with the magnitude of the slowdown being aggravated by the tightening monetary policies. in 2h 2011, chinas system deposit growth slowed to an annualized rate of 5.8%, compared to the m2 target of 14%. more importantly, for 2011 as a whole, deposits from enterprises fell by rmb109bn, compared to an average increase of rmb4.1tr a year from 2007-2010. we believed the falling corporate cash profits would eventually translate into asset quality problems more severe than those seen in 2008 and we cut our earnings forecasts by as much as 30% to reflect the risks. this line of thinking explained our view on the sector being neutral despite the expected rrr cuts. what is new is that we have confirmed with our industry contacts that the cbrc has made three major positive policy changes, as publicly discussed, which will improve the operating environment for banks, although some market commentators might argue that these measures are only giving the industry more time to address the legacy business mismatch risks. the measures include: (1) the deferral of the implementation of the new capital adequacy rules (in particular, the target tier 1 ratio of 9.5% for sib by 2013 and 8.5% for non-sib by 2015). we expect the new rules to be made more aligned with basel 3, which requires banks to adopt higher overall capital requirements from 2016; this should help remove the capital raising pressure for banks, especially the big four banks. for details, please refer to our report entitled “too much supply, prefer icbc and abc on high net dividends” dated 27 july 2011. (2) an accelerated resolution of lgfv loans including the rolling over of loans. we estimate that around rmb113bn and rmb68bn of potential npls for the h-share listed banks have been respectively resolved and rolled over in 2011. this explains 75% of our earnings upgrade in 2012. according to nao, around rmb298bn out of rmb556bn of problematic lgfv loans identified in 2010 was resolved, and we believe the rest of the loans were largely rolled over to leave more time for restructuring. (3) a higher loan quota of rmb8tr for 2012, a bigger policy tolerance for banks that operate on a loan/deposit ratio (ldr) higher than 75% temporarily (although the regulatory limit on ldr at 75% will remain unchanged), and a more controlled pace on deposit rate deregulation. in light of the better operating environment, we upgrade our net profit forecasts for the h-share listed banks by 39% and 29% for this and next year respectively, on much lower bad debt charges of 65bps (from our original forecast of 140bps). we upgrade the 515 deutsche bank 17 january 2012 banks chinese banks - 2012 outlook markets research page 4 deutsche bank ag/hong kong sector rating from neutral to overweight, and raise our target prices by 19.2%. the magnitude of the target price upgrade is half that of the earnings upgrade as we keep the terminal roe roughly unchanged and the terminal growth rate from 2015 at zero. in 2012, we continue to see deposit growth lagging behind loan growth, as the shadow banking system will become more developed and institutionalized. hence, we maintain icbc and abc, which operate on the strongest deposit franchises, as our top picks. we also upgrade cmb from sell to hold and spdb from hold to buy as we see limited potential downside for them. nevertheless, we see bigger risks for msb, ceb, cncb and bonb as these banks are operating on higher ldr, with heavy reliance on corporate deposits and higher exposure to sme. while we see deteriorating asset quality for loans to property developers as one of the biggest risks for the sector in 2012, other risks include divestment of strategic shareholders, economic slowdowns, asset quality deterioration and policy risks that will translate into lower loan spreads, and higher standards on capital, provisioning and other operating parameters. our new target prices are based on our earnings forecasts up to 2015 and assume zero growth in book value from 2015 to perpetuity, and we express them in terms of valuation based on the revised earnings forecasts (see figure 1). figure 1: new target prices and valuation based on our revised earnings forecasts tickerratingtptptp chgcurrentupside newold(%)price(%)11e12e13e11e12e13e11e12e13e icbc-h1398.hkbuy6.635.8713.0%5.1528.8%7.1 6.5 6.0 1.5 1.3 1.2 5.51%5.99%6.55% ccb-h 0939.hkbuy7.216.3813.0%5.7425.6%7.0 6.3 5.8 1.5 1.3 1.1 5.73%6.32%6.92% abc-h1288.hkbuy4.774.0019.2%3.6331.4%7.4 5.8 5.3 1.5 1.2 1.1 5.30%6.72%7.32% boc-h 3988.hkbuy4.063.952.9%3.1728.2%5.9 5.3 4.6 1.0 0.9 0.8 6.65%7.42%8.45% bcom-h 3328.hkhold6.875.5923.0%5.8317.9%6.2 5.0 4.5 1.2 1.0 0.9 5.63%7.03%7.74% cmb-h3968.hkhold18.1114.1528.0%16.946.9%9.6 8.4 8.1 1.8 1.5 1.3 2.30%2.63%2.73% citic bank-h0998.hkhold5.424.5519.1%4.7015.3%6.2 5.4 5.0 1.1 0.9 0.8 4.00%4.60%5.00% minsheng-h1988.hkhold7.606.0924.9%7.087.4%5.5 5.4 4.7 1.2 1.0 0.9 3.63%3.71%2.74% crcb3618.hkbuy5.184.0029.5%4.5613.6%8.3 6.9 6.1 1.2 1.1 1.0 4.23%5.08%5.73% h share sector19.2%6.9 6.2 5.6 1.4 1.2 1.1 5.60%6.26%6.87% spdb600000.ssbuy11.569.6919.3%9.0427.9%6.1 5.4 4.9 1.1 1.0 0.8 2.45%2.76%3.09% industrial bank601166.ssbuy17.2616.405.3%13.2830.0%5.6 5.7 5.1 1.2 1.0 0.9 3.56%3.49%3.95% minsheng-a600016.sshold6.186.80-9.1%6.23-0.8%6.0 5.8 5.1 1.3 1.1 0.9 3.35%3.42%2.53% ceb601818.sshold3.093.23-4.2%2.945.3%6.8 6.1 5.3 1.3 1.1 0.9 4.41%4.92%5.71% szdb000001.szbuy18.8919.14-1.3%15.7819.7%8.0 8.1 7.0 1.1 0.9 0.8 0.00%0.00%0.00% bank of beijing601169.sshold10.3110.112.0%9.716.2%6.9 7.0 6.3 1.2 1.0 0.9 2.87%2.83%3.15% bank of nanjing601009.ssbuy10.529.906.3%9.2713.5%9.0 7.3 6.3 1.3 1.1 1.0 2.84%3.50%4.10% bank of ningbo002142.szsell8.239.00-8.5%9.30-11.5%8.9 7.7 6.8 1.5 1.3 1.1 2.78%3.22%3.66% a share sector1.2%7.0 6.2 5.6 1.4 1.2 1.0 4.82%5.51%6.03% note: closing price as of div. yield (%) january 13, 2012 p/e (x)p/b (x) source: deutsche bank 516 deutsche bank 17 january 2012 banks chinese banks - 2012 outlook markets research deutsche bank ag/hong kong page 5 lgfv loans resolution key summary of lgfv loans by nao as of end-2010, the national audit office (nao) reported that total local government debt had reached rmb10.7tr, or 1.07x of total government revenue. at rmb4.97tr, almost 50% of the government debt was due to lgfv loans, which amounted to 12% of gdp. of the total rmb4.97tr of lgfv loans granted by the 6,567 lgfvs, 63% were to be directly repaid by local government, another 16.4% the loan repayment was guaranteed and 20.5% of loans were supported by local government. figure 2 highlights the picture post 2010. figure 2: debt obligations of local governments and their gics (i.e. lgfvs) total govt debttotal govt debtlgfv loanslgfv loans size rmb 10.7tr (bank loans= rmb 8.9tr) rmb 4.97 tr prior to 2008: rmb 5.48trno. of lgfv: 6,567 direct repayment 62.62%63.1% guarantee 21.8%16.38% contingent support 15.58%20.5% source: nao in addition, our earlier conversations with the banks managements and cbrc had suggested that the regulators were not allowing banks to extend the maturity of the loans that were classified as lgfv loans, with a few exceptions, like social housing. figure 3 and 4 display the maturity profile of lgfv loans as a percentage of total loans, and by absolute value. figure 3: maturity profile of lgfv loans (as percentage of total lgfv loans) figure 4: maturity profile of lgfv loans (absolute value of lgfv loans) 24.5% 17.2% 28.1% 30.2% 0% 5% 10% 15% 20% 25% 30% 35% 201120122013-2015after 2016 maturity profile of lgfv loans 1.21 0.85 1.39 1.5 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 201120122013-2015after 2016 maturity profile of lgfv loans rmb trn source: deutsche bank, nao source: deutsche bank, nao according to the report by nao, the problematic lgfv loans were only 11.2% of them, or rmb560bn. these included (1) rmb244bn of loans to lgfv of improper corporate registration, (2) rmb150bn of evergreen loans, (3) rmb73.1bn of loans with overstated collateral, (4) rmb46.4bn of loans with invalid guarantee by the local government, (5) rmb35bn of loans used for non-production activities, (6) rmb8bn of overdue loans (figure 6). 517 deutsche bank 17 january 2012 banks chinese banks - 2012 outlook markets research page 6 deutsche bank ag/hong kong figure 5: problematic lgfv loans figure 6: breakdown of problematic lgfv loans 11.2% 88.8% problematic lgfv loans nomal lgfv loans 244.0 46.4 35.0 73.1 158.0 improper registration invalid guarantee misused loans overstated there has been a restructuring of corporate ownership structure, through increased capital, m with the exception of 2008 and 1h 2011, every year has seen deposit generation below the period average of 1.7. however, the ratio fell to new lows in the 2h 2011, recording a half-yearly ratio of 0.7, taking the fy2011 average to 1.32, the lowest level in the decade. as we have mentioned in our previous reports, this fall in deposit growth has resulted both from flows to the shadow banking system and the significant decline in the money multiple on the back of record-high reserve requirements. the trend has worsened due to sustained capital outflows and a lower money multiplier, with chinas m2 growth having fallen to 11% by september 2011 (m2 growth in 2009: 28%). 520 deutsche bank 17 january 2012 banks chinese banks - 2012 outlook markets research deutsche bank ag/hong kong page 9 figure 11: chinese banks deposit generation ratio from new loans (2000 to 2011) 2.67 1.531.44 1.34 1.77 2.69 1.58 1.48 1.84 1.37 1.52 1.75 0.70 0.00 0.50 1.00 1.50 2.00 2.50 3.00 200020012002200320042005200620072008200920101h112h11 fy2011: 1.32fy2011: 1.32 averagefrom 2000 - 2011: 1.7averagefrom 2000 - 2011: 1.7 source: deutsche bank, ceic decoding the new deposits by scratching beneath the surface, we find the answer to what is causing such a dramatic fall in the deposit growth in china. in figure 12, we break down new deposits into their constituent components: enterprise/corporate, retail, government and others, and find that it is the obvious slowdown in corporate deposits that has brought down deposit growth in china. corporate new deposits, having reached a high of rmb7.2tr in 2009, started receding, falling by almost half in 2010. however, 2011 marked a year when there was actually a reduction in corporate new deposits, meaning there were more deposits replenished than created. this led to a fall in new deposits to the tune of rmb109bn. this fall in corporate new deposits that started in 2010 was compensated by an increase in government deposits at the same time; therefore, the decline was not obvious earlier. we believe more deposits from government departments and related agencies are being put into the banking system, in response to a bigger and more delegated budget. more importantly, commercial banks are offering them increasingly competitive deposit rates, given the tight sector liquidity. however, it was unfeasible for the government to keep increasing its bank deposits to compensate for a decrease in new corporate deposits, leading to the present scenario being faced by the chinese banks. figure 12: breakdown of new deposits 3,029 2,563 7,298 3,658 (109) 1,152 4,626 4,264 4,373 3,973 3,662 4,295 (1,000) 1,000 3,000 5,000 7,000 9,000 11,000 13,000 20072008200920102011 enterpriseretailgovt fiscal others rmb bn source: deutsche bank, ceic 521 deutsche bank 17 january 2012 banks chinese banks - 2012 outlook markets research page 10 deutsche bank ag/hong kong the fall is even more remarkable if one is to analyze the growth of new non-government deposits. with little change in new retail deposits over the past four years, corporate deposits were the principal source of growth in new non-government deposits. after having peaked at 19.3% in 2009, new non-government deposits, as a percentage of total deposits, have fallen to 4.8% in 2011, putting china under an even tighter liquidity scenario compared to 2008. figure 13: breakdown of new non-government deposits 1,152 4,626 4,264 4,373 3,973 3,029 2,563 7,298 3,658 (109) 10.7% 15.4% 19.3% 11.2% 4.8% (5,000) - 5,000 10,000 15,000 20,000 -5% 0% 5% 10% 15% 20% 20072008200920102011 retail (rhs)enterprise(rhs) others(rhs)non-govt. % of total deposits (lhs) (rmb bn) source: deutsche ba