Pulse of China Banks
Some P/BVs have fallen close to 2SD below mean
• 2013 new Rmb loans were Rmb8.89trn; we expect Rmb9.3-9.7trn for 2014
• TSF remained strong driven by non-bank financing
• Some banks’ P/BV have fallen close to 2SD below mean despite stable macro environment
• We like CCB among large caps, CMB among smaller banks December new loans were lower than expected. New bank lending amounted to Rmb483bn in Dec, lower than a survey mean of Rmb570bn. ST loan demand was strong while LT corporate loan growth declined m-o-m. Rmb L/D ratio eased to 68.9% at Dec’13 from Nov’s 69.2% due to deposit seasonality and slower credit growth.
2013 new Rmb loans reached Rmb8.89trn, and outstanding Rmb loan grew 14.1% y-o-y to Rmb76.64trn. Full year deposit rose by 13.8% y-o-y despite a credit crunch in July. M2 growth was 13.6%, ahead of PBOC’s target of 13%.
TSF hit Rmb 17.3trn in 2013. Total social financing (TSF) topped forecast at Rmb1.23trn in Dec, bringing 2013 new TSF to Rmb17.3trn. The higher-than-expected growth in Dec was led by acceptance bills, trust loan and entrusted loan, indicating that shadow banking activities remained strong during year-end. Nonbank financing channels expanded 43% y-o-y in 2013, accounting for 45% of new TSF in 2013 compared to 42% in 2012.
Credit growth should slow modestly in 2014. We expect 2014 outstanding Rmb loan growth will decelerate to 13.0-13.5%, with new Rmb loans in the Rmb9.3-9.7trn range. We adjust our 2014 TSF forecast to Rmb18.5trn, with 45% coming from non-bank loan financing channels.
Our macro team expects 2014 GDP to be 7.8% and 2014 CPI to be 3%, setting a conducive environment for reform. We expect steady monetary policy in 2014, since PBOC said it would neither loosen or tighten money supply, and China’s premier, Li Keqiang, recently said that the government would guarantee adequate liquidity for 2014.
Some banks’ P/BVs are close to 2SD below mean. The sector has corrected 6% on average since the announcement of local government debt size at end 2013. The average trailing 12 month P/BV fell back to 0.89x, which is 1.4SD below the 2 year mean of 1.08x. Some banks such as CCB also have P/BV levels that are close to 2SD below mean. We believe bottom fishing opportunities are emerging. We continue to like large caps for their more transparent earnings and risk profiles, but also see potential upside for quality joint-stock banks given their better ability to compete in a liberalized market. We like CCB among large caps, and CMB among mid caps.