Financial Industry 07 (Jul 18 - Dec 24)

[winston]

<Research Report>Citi: China Loans Changed to LPR-Priced, Sees Hit on CN Bank NIM/ Earnings Milder Than Consensus

The PBoC announced the conversion of all new loans to LPR-based pricing, from 1 January 2020, while existing floating-rate loans will be switched to LPR pricing from 1 March 2020.

Mortgage loan pricing will also hold steady until the next repricing date, reported Citigroup.

The broker foresaw milder-than-expected impact on Chinese banks' NIM or earnings, as loan pricing will still be based on supply-demand dynamics.

Source: AAStocks Financial News

[winston]

SINGAPORE BANKS – GUIDANCE LOOKS ON TRACK

Following easing trade tensions, a shift in consensus interest rate expectations, to a pause in Federal Reserve rate cuts and recent news flow surrounding digital licenses applicants in Singapore, we met up with the management teams of DBS and UOB for a sector update earlier this month.

The upcoming 4Q19 results (DBS-13th February, UOB-21st February) is expected to see the sector meet the bulk of their prior guidance provided.

The growth outlook for Singapore banks in 2020 is expected to remain modest, with average 4-5% loans growth and stable asset quality trends.

While the sector’s net interest margin should continue to reflect the lagged pass-through from last year’s Federal Reserve interest rate cuts in the upcoming quarters, concerns over NIM compression should ease later this year assuming the current base case of a pause in Federal Reserve interest rate remains unchanged.

Non-interest income growth momentum has been a silver lining supporting the bottom line for the sector, and is projected to continue aiding growth this year.

Asset quality trends remain benign with stress tests results suggesting unremarkable risks, while banks are watchful for gradual deterioration in credit quality and have guided for a small uplift in credit costs as the cycle develops.

Dividends - which are expected to remain stable, translating to an average ~5% forward yield – should provide some support for Singapore banks. Overall, we maintain a constructive view on Singapore banks with stable yields expected as banks continue to deliver modest loan growth and maintain asset quality.

Valuations wise, Singapore banks last trade at ~1.2x price/book, in line with the sector’s past ten-year historical average multiple, which is not demanding.

While we expect share price returns of DBS and UOB to track more closely with each other this year given easing concerns over further NIM compression and a benign asset quality outlook, we maintain the relative preference for United Overseas Bank (UOB SP) over DBS Group Holdings (DBS SP) as the former trades at cheaper valuations, is estimated to have relatively smaller interest rate sensitivity to lower short term rates and offers a more diversified loan book through its strategic focus on ASEAN economies.

Source: OCBC

[winston]

Taking the Pulse of the Big Banks

by Rob Morgan

Let's look at the pros and cons that should impact big bank Q4 earnings...
1. PRO: Fed's Organic Balance Sheet Growth
2. CON: Narrow Yield Curve
3. CON: Net Interest Margin Bottoming
4. PRO: Surge in Trading Revenue

As earnings continue, I suspect to see similar mixed reports from big banks - though overall the pros should outweigh the cons.

Source: The Oxford Club

[winston]

China bad loans could SOAR TO 10tn yuan

by Stella Zhai

S&P Global warned that China's non-performing loans could reach as high as 10.1 trillion yuan (HK$11.19 trillion) if the coronavirus does not peak in April, while China's new loans in January had surged to a record high of 3.34 trillion yuan and is expected to climb even higher.

This comes as the People's Bank of China cut the benchmark one-year loan prime rate, as widely expected, by 10 basis points to 4.05 percent from 4.15 percent, at the previous monthly fixing.

S&P Global predicted China's GDP growth could be as low as 4.4 percent if the epidemic peak does not come until April, which is a worst-case scenario, and some businesses and individuals struggle to repay their debt.

Even in the most likely scenario, in which the virus peaks in March, the NPL could rise to 7.8 trillion yuan, representing 6 percent of banks' total loans, said S&P Global.

"We expect China will loosen NPL recognition standards to help affected businesses and communities, and that it may take years to digest the forbearance," it added.

The PBOC also lowered the five-year LPR by 5 basis points to 4.75 percent, lower than expected.

Meanwhile, the northern Chinese province of Hebei has established a special financing vehicle worth 50 billion yuan to help get the local economy up and running again. Banks in Shanghai have also issued 1.31 billion yuan in cheap loans to 48 key firms, a local government official said.

Consumption will be most heavily impacted by the coronavirus in the first quarter, and the government expects activity to bottom out in March and recover in the second quarter, said the Ministry of Commerce, adding that the government will study rolling out more support measures, including boosting auto sales.

The agricultural, food and industries that involve a long supply chain and are labor-intensive will be heavily impacted if the coronavirus crisis lasts for a long time, said Li Xinggan, Director of the Ministry's Foreign Trade Department.

In other news, more mainland developers issued bonds, with Yuzhou Properties (1628) introducing US$400 million notes due in 2025, at an interest rate of 7.7 percent per annum. Shares of mainland developers overall fell yesterday.

In the currency market, the onshore yuan weakened by 212 basis points to a half-month low of 7.0153 per US dollar as yesterday evening.

Source: The Standard

https://www.thestandard.com.hk/section- ... -10tn-yuan

[winston]

Asian banks are bracing for bad loans spike

Source: SCMP

https://www.scmp.com/business/banking-f ... oans-spike

[winston]

Banks are about to drown in an ocean of defaults

There’s $250 TRILLION in global debt right now-- mortgages, credit card debt, business loans, government debt, etc.

And banks own a large portion of that debt.

This virus crisis is going to trigger a wave of defaults from consumers, businesses, and even governments.

Think about it: tourism alone makes up 10% of global GDP. Revenue in that entire sector-- hotels, airlines, cruise ships, etc. has collapsed, and many of those companies aren’t going to survive.

The crash in oil prices is going to wipe out countless oil companies.

Many large retail chains, which were already struggling in the age of e-commerce, will likely declare bankruptcy.

Countless businesses around the world have ‘temporarily’ closed due to public health policies, and many of them will go out of business entirely.

MOST of these businesses owe lots of money to the banks, whether it’s a small business working line, or the $34 billion in debt that American Airlines owes. So the defaults are going to be massive.

On top of that, millions of people are going to lose their jobs and be unable to make payments on their credit card debt, auto loans, and even mortgages.

Again, there’s $250 trillion in global debt right now. Total bank capital worldwide is less than $10 trillion.

So if the coming defaults trigger a mere 4% loss in total debt, it will exceed the entirety of global bank capital.

And this doesn’t even take into consideration the impact of the $1 QUADRILLION derivatives exposure.

Source: Sovereign Man

[behappyalways]

Investment bank consolidation seen likely amid virus fallout
https://www.businesstimes.com.sg/bankin ... us-fallout

[winston]

Mainland bank non-performing loans set to rise

PricewaterhouseCoopers China predicts non-performing loans in the mainland will rise this year but would be controllable, while major banks' net interest spread could be under pressure.

The firm said a total of 37 mainland-and Hong Kong-listed banks took up 71.4 percent of the total assets of all mainland commercial banks and 76.8 percent of the total net profit last year.

Large banks maintained a 5 percent average net profit growth last year and incorporated commercial banks overall have seen 5-10 percent growth last year, said PwC China.

The difference in profit growth between urban and rural commercial banks widened. Some of them saw double-digit growth and some had a double-digit drop in profit last year.

PwC China expects mainland bank revenue from intermediate businesses, including credit card payments, to drop as the coronavirus pandemic impacts the transportation, catering and tourism sectors.

Source: The Standard

https://www.thestandard.com.hk/breaking ... et-to-rise

[winston]

Major China lenders' profits up in quarter

by Kevin Xu

ICBC's profit rose 3 percent to 84.49 billion yuan. REUTERS

Four out of the five largest state-owned banks in the mainland saw single-digit growths in their net profit in the first quarter, while some non-performing loans also rose.

Industrial and Commercial Bank of China (1398), China's largest lender by assets, said its net profit in the first three months was up 3 percent year-on-year to 84.49 billion yuan (HK$92.54 billion).

In comparison, Agricultural Bank of China (1288)'s first-quarter net profit was up 4.79 percent to 64.18 billion yuan, Bank of Communications (3328)'s first-quarter net profit was up 1.8 percent to 21.45 billion yuan, and China Construction Bank's (0939) net profit was up 5.12 percent to 80.85 billion yuan.

In terms of non-performing loan ratios, an indicator of credit risk, ICBC's NPL ratio was flat at 1.43 percent, ABC's NPL ratio was at 1.4 percent while Bocom's NPL ratio was up 12 basis points to 1.59 percent over the end of the previous year. CCB's NPL ratio was 1.42 percent, staying flat compared to the end of last year.

Net interest margin, a key gauge of profitability, narrowed by 4 basis points on a year-on-year basis to 1.55 percent for Bocom dropped 11 basis points year-on-year to 2.2 percent for ICBC and went down 10 basis points year-on-year to 2.19 percent for CCB.

Operating income for ICBC amounted to 206.18 billion yuan in the first quarter, up by 2.16 percent from a year before. Net interest income was 154.28 billion yuan, up by 4.11 percent year-on-year. The tier 1 capital adequacy ratio was 14.19 percent.

Meanwhile, Bank of Chongqing (1963) said net profit in the first quarter surged 13.7 percent year-on-year to 1.37 billion yuan.

Source: The Standard

https://www.thestandard.com.hk/section- ... in-quarter

[winston]

Goldman Sachs Is Bullish on These Capital Markets Stocks as Trading Volume Soars

by Lee Jackson

1. Carlyle
2. ICE
3. LPL
4. Stifel

Source: 24/7 Wall Street

https://247wallst.com/banking-finance/2 ... MAY042020a