China Banks
Momentum Is Still Positive
Surprises on macro front continue to be on the
upside: China’s 2Q09 GDP came in at 7.9%, and
Morgan Stanley’s China economist, Qing Wang, revised
up his GDP forecasts to 9% for 2009 and 10% for 2010.
In 2Q09, NPLs down 5.8% QoQ for the industry.
A-share IPOs restarted in June-09. In 1H09, new loans
reached Rmb7.34 trillion. We are revising up our
2009-11 earnings estimates by 4-8% on average on
stronger-than-previously-expected loan growth, fee
growth for a few banks and lower credit costs estimates.
Continue to prefer large cap banks, Overweight
CCB and ICBC: While we raise our earnings estimates
by a similar magnitude for all the banking stocks, we
believe the drivers of growth will be more broad-based
for large-cap banks, including credit growth, fee outlook
and asset quality, among others. We see upside risk to
NIM (on the back of higher market rates and more
capital market activity), in particular for large cap banks.
Strong loan growth and slow NPL formation still a
theme for the rest of 2009: We are revising up our full
year new loan target to Rmb10 trillion (Rmb8 trillion
previously), with stimulus packages affecting a broader
economy in 2H09. Reflecting both slower NPL
formation and more conservative provisions on the back
of CBRC requirements, we revise down our credit cost
by assumption by 4bps on average. End 2009 average
coverage est. of 166% have most banks close to or
>150% requirement.
NIM may deliver another leg for upward earnings
revision; large-cap banks to benefit more: Market
rates have moved up recently, and large-cap banks
have lower L/D ratios. With the pickup in capital market
activity, retail deposits tend to see more meaningful
shifts into demand deposits and large-cap banks have
better retail deposit franchises.