Financial Industry 07 (Jul 18 - Dec 24)

[winston]

Global Financials – Easing tail risks, improving tailwinds

Our house expects modest yield steepening ahead and has raised our U.S. interest rates forecasts to 1.2% and 2.15% for 10Y and 30Y treasury yields respectively.

With improved confidence on the strength of the global economic recovery in 2021, we raise our global financials sector rating to neutral on the view that tail risks are more diminished and the sector should benefit from cyclical tailwinds.

Short rates should stay low for the next few years however, which implies banks’ net interest income generation will remain modest in a prolonged low-rate environment, although a more conducive operating environment for banks to generate better non-interest income should support valuations.

Tactical rotations favouring value and cyclical stocks should also provide further tailwinds and support sector returns.

In terms of stock picks, we still favour accumulating on dips quality franchise picks (such as JP Morgan, Bank of America, Blackrock Inc, UBS Group, DBS Group Holdings, United Overseas Bank, AIA Group, Ping An Insurance, Bank of China HK and Standard Chartered Bank), which have gained over the past months since we advised adding positions and are now rated Hold.

Buy-rated financials where we still see attractive value include Citigroup, Credit Suisse, Julius Baer, Lloyds Banking Group, Sumitomo Mitsui Financial Group, China Construction Bank and Ping An Bank.

Insurers globally should also see relatively less headwinds from a steeper yield curve although demand will take time to recover.

We prefer HK/China insurers where the growth potential is stronger in view of China’s ageing population and growing middle income population, with preferred picks maintained in Ping An Insurance and China Life Insurance.

Source: OCBC

[winston]

<Research Report>C Suisse: PRC's Lending Rate Rebound Favours CN Banks' Earnings, Top-picks ICBC, ABC, CCB

Chinese banks rocketed last Friday (27 November), fueled by A-share national banks, as the market anticipated better full-year earnings given actual lending rates in September's new loans ticked up QoQ, Credit Suisse said in its report.

The broker continued recommending Big Four Chinese banks.

It preferred ICBC (01398.HK), ABC (01288.HK) and CCB (00939.HK) in pecking order, with ratings of Outperform and target prices of $5.8, $3.5 and $7.2.

Source: AAStocks Financial News

[winston]

Singapore Banks

Maybank Kim Eng downgrades Singapore banks to 'sell' while CGS-CIMB remains positive on the sector

by Felicia Tan

“Uncertainty that existed in October still remain: non-performing loans (NPLs) are set to rise as moratoriums ease while borders remain closed, NIMs continue to be under pressure and dividend caps are unlikely to be lifted in 2021e”.

“The banks are currently trading near the ceiling of the peak-to-trough channel established this year.

The y-t-d trough-peak-trough movements have on average lasted four weeks. The sector is trading at 10.6x 12- month price-to-earnings (PE), which is 8% shy of its long term mean”.

Source: The Edge

https://www.theedgesingapore.com/capita ... mb-remains

[winston]

China Banks

C Suisse: CN Sets Regulatory Requirement for Systemically Important Banks; Minsheng, CITIC May Face Pressure

Credit Suisse mentioned in its research report that the PBoC and CBIRC had officially released the final version of appraisal method to identify systemically important banks (D-SIBs), which is coming into effect on 1 January 2021.

The broker opined that the regulatory framework of D-SIB targets large banks and may mean more risk exposure for smaller banks.

Among all the banks it covers, MINSHENG BANK (01988.HK) and CITIC BANK (00998.HK) will probably be particularly pressured.

Source: AAStocks Financial News

[winston]

Citi: CN Big 4 Banks' Loan CAGR Must Cut to 4-11% to Comply with TLAC Requirement

PBOC and CBIRC released a consultation paper on implementing the Total Loss-Absorbing Capacity (TLAC) standard, asking all globally systemically important banks (G-SIB, i.e. currently the Big 4 banks) in China to meet relevant TLAC standard and requirements, reported Citigroup.

Assuming the Big 4 lenders are to meet the global TLAC standard without changing payout ratio, they must decelerate their loan CAGR to 4.3%-10.6% for 2020-24E.

The broker expected BANK OF CHINA (03988.HK) and ICBC (01398.HK) to face the biggest loan growth slowdown.

Among Chinese banks, the broker recommended Top Buys: CCB (00939.HK) and PSBC (01658.HK) and INDB (601166.SH).

Source: AAStocks Financial News

[winston]

China estimates shadow banking worth US$12.9 trillion as it moves to clean up high-risk sector

Chinese regulators say shadow banking sector equivalent to 86 per cent of gross domestic product in 2019

Industry must be ‘constantly dismantled’ as part of China’s financial de-risking campaign, authorities say

by Frank Tang

Broadly defined, shadow banking includes wealth management fund products, entrusted loans, small credit and peer-to-peer (P2P) loans – was equivalent to 86 per cent of gross domestic product and 29 per cent of China’s total banking assets.

Source: SCMP

https://www.scmp.com/economy/china-econ ... n-it-moves

[winston]

CICC Restates Optimism on CN Banks, Policy Tailwind Favours Financial Statement Recovery

With regard to Central Economic Work Conference's notice, CICC regarded development resumption and high-quality growth as keywords of the 2021 economic focus.

Macro policy and recovery will help accelerate banks' balance sheet revival.

Restating a fully upbeat view on Chinese lenders, CICC recommended INDUSTRIAL BANK, CEB BANK (06818.HK), A/H-shares of the big four banks, CM BANK (03968.HK) and PAB (000001.SZ) .

Source: AAStocks Financial News

[winston]

These Bank Stocks Rally Following Great News From The Fed

by Jonathan Weber

Summary

Bank stocks declined a lot during the spring sell-off and have underperformed the market this year.

Worries about high credit losses seem overblown.

Buybacks will boost EPS, many stocks look attractively valued still.

Last week, the Fed allowed major banks to resume their capital return programs, which will lead to buybacks and potential dividend increases in 2021.

Many bank stocks still look inexpensive, versus their historic valuation ranges and versus the broad market.

With ramped-up capital returns being a potential catalyst in 2021, more upside could be coming.

Source: Seeking Alpha

https://seekingalpha.com/article/439555 ... ent=link-3

[winston]

Hong Kong Banks: Loan impairments, drop in interest income, weaken bank earnings

The aggregate pre-tax operating profit of retail banks fell by 26.1 percent in the first three quarters of 2020, from last year, due to a drop in net interest income and a surge in loan impairment charges, according to the Hong Kong Monetary Authority.

The highly uncertain pandemic and economic outlook could continue to weigh on bank loan quality and profitability in the coming months, the HKMA said.

Retail bank net interest margin narrowed to 1.24 percent in the first three quarters of 2020 from 1.64 percent in the same period of 2019.

Source: The Standard

https://www.thestandard.com.hk/breaking ... k-earnings

[winston]

Mainland banks face rough ride

Chinese banks are expected to face headwinds when seeking to raise funds next year as profit-conscious investors cling to the sidelines, expecting a wave of bad loans to hammer the sector and erode already slimming margins.

The sector is ending its worst annual performance in years after putting aside record provisions due to Covid-19, and Beijing has urged banks to sacrifice profits to help the economy.

Next year as lenders end pandemic-related loan forbearance - which means borrowers can suspend repayments or pay less in interest - banks must bolster their capital against loans previously not classified as nonperforming.

Big and medium-sized banks also need to improve their capital adequacy as demanded by global and domestic watchdogs.

China's banks raised 1.2 trillion yuan (HK$1.42 trillion) in the first 11 months of the year - off the pace of 1.5 trillion yuan for all of 2019, data from Fitch Ratings shows.

The 26 listed banks may need to replenish at least 1.25 trillion yuan of capital in 2021, Shenzhen-based brokerage Guosheng Securities estimates.

"The pressure of capital raising for the whole banking industry is still pretty big," said Vivian Xue, Fitch's director of Asia-Pacific financial institutions. "China's largest banks will need to raise substantial capital or loss-absorbing debt over the next few years."

The four largest - Industrial and Commercial Bank, Construction Bank, Agricultural Bank and Bank of China - face a shortfall in this loss-absorbing debt of 4.7 trillion yuan by the end of 2024 to meet requirements set by the Basel-based Financial Stability Board.

In the scenario, Fitch assumes risk-weighted assets including loans will grow 8 percent annually.

Mainland banking shares have fallen 6.5 percent this year, even as China's broader market surged 22 percent.

Source: REUTERS

https://www.thestandard.com.hk/section- ... rough-ride