Financial Industry 07 (Jul 18 - Dec 24)

[behappyalways]

2020.09.27【文茜世界財經周報】洗錢醜聞與不可靠實體清單　匯豐銀行陷困境
https://www.youtube.com/watch?v=_4TqrmrDNIw

[winston]

Singapore Banks – Extension of loan relief measures

The Monetary Authority of Singapore and Association of Banks have jointly announced the extension of various relief measures supporting SMEs and individuals with cashflow difficulties by six months from 31 December 2020 to 30 June 2021, providing more time for debt servicing given the continued drag from the pandemic.

The measures aim to support individuals and businesses in transiting to full loan repayments over time, but those able to resume full loan repayments are encouraged to start doing so from 1 Jan 2021.

SMEs in sectors that have been more impacted by the pandemic can extend their moratoriums (80% of loan principal for eligible loans can be deferred; timeline is extended from end Dec 2020 to end June 2021), while support for individuals include reduced instalment payment plans for property loans (pegged at 60% of borrowers’ monthly instalment) and extension of loan tenures on debt consolidation plans for up to five years.

Overall, we see the latest measures announced as a mild positive in easing concerns over potential cliff effects and in line with the ongoing proactive industry efforts to smoothen out the impact of the pandemic on banks’ asset quality.

We continue to see a gradual recovery path ahead with asset quality, growth and prolonged low interest rate concerns remaining in 2021.

Due to undemanding valuations, we also have a constructive longer-term stance on both DBS (Hold, fair value SGD22.50) and UOB (Buy, fair value SGD21.50) for patient investors.

Potential catalysts for the sector ahead include improved expectations on growth, interest rates and asset quality/tone of provision guidance, as well as clarity on dividends distribution in FY21E.

Source: OCBC

[winston]

Banks get a break on lowering earnings

by Avery Chen

China's banking regulator is easing requirements on banks to report lower profits, delivering a reprieve for the US$45 trillion (HK$350 trillion) sector that has been under pressure to sacrifice earnings to support the economy.

The China Banking and Insurance Regulatory Commission has given major lenders discretion to report earnings declines of about 10 percent or less, below the more than 20 percent drop seen in the second quarter, according to a Bloomberg source.

The relaxation of a June directive to rein in profits comes as lenders face ballooning bad debt and eroding capital levels.

Profit at China's banks plunged at the fastest pace since at least 2009 in the second quarter as bad debt hit a record level and capital buffers eroded.

Meanwhile, China's central bank issued draft rules yesterday for setting up a fund of up to 1 billion yuan (HK$1.15 billion) to help manage the risks of third-party payment companies, such as Ant Group's Alipay and WeChat Pay operated by Tencent (0700).

The People's Bank of China requires payment firms to hand in provisions from January 2019 to secure clients' money, which comes along with a quarterly interest.

Now it plans to take from 9.5 percent to 12 percent of that interest into the fund, according to a statement by the PBOC.

Source: The Standard

https://www.thestandard.com.hk/section- ... g-earnings

[winston]

US Banks

The Fed, Treasury and Congress pumped trillions of dollars into the economy to keep consumers and businesses solvent. That's a direct backstop (protection) against loan losses.

And the Fed created tremendous revenue opportunities for the banks. They eliminated the reserve requirement for banks—taking the ratio from 10% to zero. The banks are incentivized to make an infinite amount of loans.

The Fed is also a buyer of corporate bonds, reducing risk in the credit markets, which has driven record volumes in new corporate debt issuance. That drives investment banking business at the big banks.

And the liquidity deluge from the Fed has created a broad stock market boom, which drives trading revenue.

So, despite the fragile economy, the banks are probably as low risk as they've ever been because they will continue to be defended (if need be) by the Fed.

Source: Forbes

[winston]

BofAS: Worst Time for CN Banks Likely Over; 3Q Results May Become Catalyst

The worst for Chinese banks may have been over, opined BofA Securities.

Chinese H-share lenders jumped 4-6% without material news on 12 October, pointing to investors' digestion of negative sector news.

The banks' upcoming 3Q20 results could be a positive catalyst to help the market clarify their earnings trend.

Source: AAStocks Financial News

[winston]

not vested

Banks Are Historically Cheap

by Jody Chudley

For the entirety of 2019, the “big six” banks – JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), Citigroup (NYSE: C), Wells Fargo (NYSE: WFC), Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) – reported $20 billion of combined loan-loss provisions.

After the first six months of this year, they had already hit $60 billion.

Source: Wealthy Retirement

https://dailytradealert.com/2020/10/14/ ... lly-cheap/

[winston]

China's big banks face debt woes after paring profit drops

by Charlie Zhu, Jun Luo & Zheng Li

Net income slid less than 5% at Industrial & Commercial Bank of China Ltd (ICBC) and its three largest rivals in the three months through Sept 30, compared with an average 25% slump in the prior quarter.

Still, the four banks saw their combined non-performing loans (NPLs) climbed to a record 979 billion yuan after charging 175 billion yuan on credit impairments in the quarter, according to reports released.

As part of the pandemic response, China has allowed many borrowers to delay interest and principal payments to March next year, which is hiding the true sense of the bad debt bulge.

Authorities have this year required banks to sacrifice 1.5 trillion yuan in profit by providing cheap funding, deferring payments, and increasing lending to small firms.

The four biggest banks may report about 8% decline in 2020 combined profit, according to consensus estimates compiled by Bloomberg.

Source; Bloomberg

https://www.theedgemarkets.com/article/ ... ofit-drops

[winston]

China Strategy: Better earnings for banks; tightening on online micro-lending

Chinese banks reported lower-than-expected net profit declines on lower provisioning pressure in.

However, pre-provisions operating profit (PPOP) growth moderated from 4% y/y in 2Q20 to 3.5% y/y in 3Q20, mainly due to weaker-than-expected non-interest income.

Net interest margin (NIM) stabilised for most banks in 3Q20 with NIM edging up 2-4bps on average.

Asset quality remained resilient while non-performing loan (NPL) ratios rose modestly by 3bps q/q to 1.43% in 3Q20 for large banks.

Early this week, financial market regulators, including the China Banking and Insurance Regulatory Commission (CBIRC) and the People’s Bank of China (PBOC), issued a consultation draft on rules for regulating online micro-lending businesses.

The new draft, which focuses on capital and risk-sharing, could potentially tighten rules in these key areas:
i) minimum registered capital requirement
ii) maximum leverage being allowed
iii) raising the requirement to qualify for nationwide operations; and
iv) CBIRC to centralise supervision.

We believe this highlights regulators’ increasing concern about the risk of excessive lending to consumers, the high leverage that big FinTech companies and platforms are taking on, and the concentration and monopoly risks related to large Fintech platforms.

We believe this will change the “capital-light” business models of online micro lending and / or FinTech companies.

With signs of NIM compression pressure stabilising and Chinese banks as a sector trading close to the low-end of their valuation, we are becoming less negative on the sector and expect it to stage a cyclical rebound in the near term.

In addition, the tightening of online micro lending platforms could potentially benefit retail-focused banks, such as China Merchants Bank and Ping An Bank.

We remain selective: among large banks, we prefer those with stable and stronger operating metrics such as China Construction Bank. We also like banks with a larger retail focus such as Ping An Bank.

Source: OCBC

[winston]

Is it time to invest in bank stocks again?

A historic recession and rock-bottom interest rates have translated to a tough year for bank stocks.

While companies like JPMorgan Chase and Bank of America have made clear they're on solid footing, with plenty of capital on hand to make it through the pandemic, the economic outlook has made it hard for Wall Street to get excited about shares of top lenders.

That may have changed this week with promising news about Pfizer's vaccine, which created a surge in investor confidence.

The KBW Bank Index, which tracks the biggest US players, has gained more than 9%. It's on track for its best week since June.

"We advise getting aggressive on banks," Wells Fargo analyst Christopher Harvey told clients Wednesday.

The thinking: A low interest rate environment eats into the money banks make on lending activity. But Harvey predicts that a viable vaccine will unleash a flood of consumer spending, contributing to inflation. That would push central banks to raise interest rates before long.

"This pent-up demand, confidence and ability to spend should not be discounted," Harvey said. Right now, he noted, investing in banks in a contrarian move. In his view, that could pay off.

Source: CNN

[winston]

China Strategy: Limited impact on Chinese banks from bond defaults

The share prices of Chinese banks were negatively impacted on last Friday by news related to the default of a regional state-owned enterprise (SOE) issuer with a domestic AAA rating, leading to concerns of potential onshore bond defaults.

Year-to-date, bond defaults are estimated to be about Rmb190bn, approximately 0.06% of total banking assets.

According to the People’s Bank of China’s 2020 Financial Stability Report, the total capital adequacy ratio (CAR) could potentially drop from 15.1% to 9.6% in the most severe scenario.

But even in this scenario, the total CAR of 9.6% would only be 0.9ppt below the regulatory requirement.

As such, the PBOC’s view is that there is no systemic risk given the sufficient non-performing loan coverage.

We believe the probability of banks facing a credit and liquidity crunch remains low and the impact from the bond market volatility should be limited.

Chinese banks have built up additional reserves, and are in a position to withstand any potential rise in corporate bond defaults.

We also expect the banking sector’s asset quality to improve in the next 12 months, in tandem with the recovery in GDP growth and corporate earnings.

We maintain our view that Chinese banks offer a tactical trading opportunity on the back of a cyclical rebound and remain selective: among large banks, we prefer those with stable and stronger operating metrics such as China Construction Bank (939 HK / 601939 CH).

We also like banks with a larger retail focus such as Ping An Bank (000001 CH).

Source: OCBC