In the first half of 2024, listed banks as a whole showed steady profit growth
2024-08-26
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Zhang Wei
A-share listed banks have successively disclosed their 2024 semi-annual reports, showing overall steady profit growth and stable asset quality. Driven by factors such as strong performance certainty, low valuations, and high dividend yields, bank stocks have recently become a bright spot in the weak A-share market.
Large state-owned banks are favored due to their solid fundamentals
Recently, the A-share market has seen a phenomenon of "the overall market is weak and falling, while state-owned banks are hitting new highs." For example, Bank of China recently hit a record high, with its share price rising by nearly 30% this year. It is worth noting that the dynamic price-to-earnings ratio of large state-owned banks is even higher than that of some small and medium-sized banks.
Ye Xiaojie, director of the Finance Department of the Shanghai National Accounting Institute, said in an interview with China Economic Times that the main factors for the record high valuations of state-owned banks include: First, the fundamentals remain sound, which is conducive to attracting investors' attention. In the current economic environment, state-owned banks are more likely to be favored by investors with their capital strength, extensive business network and high risk resistance. Second, valuation repair. In the past few years, the banking sector as a whole has undergone a long period of adjustment, and its valuation is in a trough. State-owned banks are more likely to be favored by the market with their higher certainty, helping them to repair their valuations. Third, the high dividend characteristics of state-owned banks are in line with the current market trend. Against the backdrop of falling deposit rates and large fluctuations in financial markets, investors prefer the high dividend characteristics of state-owned banks.
"Since the beginning of this year, due to the downward pressure on the economy and the sharp market fluctuations, based on conservative strategies, institutions prefer large state-owned banks with low valuations, high dividend yields and sound fundamentals." Li Jianchao, senior investment consultant of Jufeng Investment Consulting, said in an interview with China Economic Times that large state-owned banks are superior to small and medium-sized banks in terms of operational stability, profit certainty, and dividend expectations, and are more in line with the risk control requirements and defense strategies of institutions at this stage. With the convergence of investment strategies, "grouping" large state-owned banks has become a consensus among institutions. With the support of huge liquidity, the valuations of large state-owned banks have risen rapidly, even higher than those of small and medium-sized banks.
The narrowing net interest margin showed signs of stabilization
The semi-annual report shows that the net profit attributable to shareholders of Bank of Nanjing, Ping An Bank, Shanghai Rural Commercial Bank, Bank of Jiangsu, Pudong Development Bank, Industrial Bank and Changshu Bank in the first half of 2024 will increase by 8.51%, 1.94%, 0.62%, 10.05%, 16.64%, 0.86% and 19.58% respectively. The performance report shows that the net profit attributable to shareholders of China Zheshang Bank, Bank of Hangzhou, Qilu Bank, Sunong Bank and Ruifeng Bank are expected to increase by 3.31%, 20.06%, 16.98%, 15.81% and 15.48% respectively in the first half of the year. In terms of asset quality, the non-performing loan ratios of Hangzhou Bank and Changshu Bank were both 0.76% at the end of June, and the non-performing loan ratio of Nanjing Bank was 0.83%.
Ye Xiaojie said that there are four main characteristics of the performance trend of banks in the first half of the year. First, the overall operating performance achieved steady growth. Most banks achieved double growth in operating income and net profit, but the growth rate has a tendency to slow down. Second, the asset quality remains relatively stable. The non-performing loan ratio is generally at a low level and relatively stable, and the overall provision coverage ratio level is also maintained in a good state, with good risk resistance. Third, the net interest margin continued the narrowing trend since 2023, but the net interest margin of commercial banks in the second quarter was the same as at the end of the first quarter, showing signs of stabilization. Fourth, intermediary business income faces challenges. The net income from fees and commissions of some banks has declined, which may be related to factors such as regulatory fee reduction policies and capital market fluctuations.
"The trend of improving the quality and efficiency of banking operations has become more obvious in the first half of the year. Since the beginning of this year, the banking industry has gradually abandoned the scale complex, and credit allocation has focused more on key areas and weak links. Both inclusive loans and green loans have maintained a growth rate of more than 20%." Du Yang, a researcher at the China Banking Research Institute, said in an interview with China Economic Times.
According to Du Yang's analysis, the net profit of commercial banks in the first half of the year totaled 1,257.41 billion yuan, a year-on-year increase of 0.36%, and the growth rate slowed down. The net interest margin stabilized at a historical low of 1.54%, stopping the downward trend. The regulatory authorities' governance of high-interest deposit-raising behaviors has initially shown results, laying the foundation for the interest margin to return to normal levels. Non-interest income has become an important source of income in a low-interest environment. As of the end of the first half of the year, the proportion of non-interest income of commercial banks was 24.31%, an increase of about 3 percentage points year-on-year. As of the end of the first half of the year, the non-performing loan ratio of commercial banks was 1.56%, a year-on-year decrease of 0.06 percentage points, and asset quality continued to improve.
High-quality development is expected to continue to deepen
Looking ahead to the second half of the year, Ye Xiaojie believes that the banking industry is still facing considerable operating pressure. For example, the continued uncertainty in the global economy and the sluggish investment activities pose challenges to the banking industry's operating environment. With the continued recovery of the domestic economy and the precise regulation of policies, the banking industry continues to optimize its asset-liability structure, and the net interest margin is expected to stabilize further. In addition, the banking business structure continues to adjust. The banking industry will continue to increase its support for the real economy, expand diversified businesses, increase the proportion of intermediary business income to cope with the narrowing of net interest margins, and maintain relatively stable asset quality. Attention should be paid to the potential impact of factors such as macroeconomic fluctuations and industry risk exposure.
Du Yang said that the high-quality development of the banking industry will continue to deepen in the second half of the year, and the quality and efficiency of serving the real economy is expected to be further improved. Credit allocation places more emphasis on "precision and direct access", focusing on the major opportunities brought by the "five major articles" to support the development of new quality productivity. Profits have rebounded significantly, and net interest margins have steadily recovered. Banks will expand revenue channels through more diversified and integrated financial services and continuously improve the sustainability of business development. We will continue to increase the disposal of non-performing assets, pay attention to risk identification and resolution in key industries, increase capital replenishment, and thicken the risk buffer.
Li Lianchao said that the growth rate of net profit in the banking industry may still decline in the second half of the year. On the one hand, the net interest margin is still under pressure to continue to narrow. At this stage, the net interest margin income of my country's commercial banks accounts for about 80% of the revenue, which means that the change in net interest margin has a significant impact on net profit. On the other hand, based on the need to stabilize growth, the yield on long-term treasury bonds continues to decline, and the LPR still has room to fall in the second half of the year. Banks generally stated that there is still downward pressure on asset returns in the future. At the same time, "asset shortage" is still the main problem facing banks. In the future, it will be more difficult to find high-quality credit assets that match risks and returns, and it will be difficult to fill the demand gap caused by the lack of real estate and platform projects.
"Against the backdrop of overall insufficient effective credit demand, banks are under great pressure to match their assets and liabilities. At present and in the future, how to reduce liability costs is an issue that banks urgently need to address," said Li Lianchao.
