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<Research>CICC Evaluates Two Scenarios of Lowering Existing Mortgage Rates in CN; Both Expected to Impact CN Bank NP by 7%
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According to a recent report from CICC, the People's Bank of China (PBOC) mentioned in a recent interview that it would "promote a steady decline in the cost of corporate financing and residential credit" and "study reserve incremental policy measures". As the market is concerned about the possible form and impact of existing mortgage rate cuts, it should make reference to past experiences with such adjustments for discussion. Scenario 1: Assuming that all mortgage loan interest rates are lowered to the level of the newly-issued interest rates through refinancing and self-adjustment, it is estimated that the average reduction in the existing mortgage rate will be about 60 bps, which will decrease the borrowers' interest expenses by about RMB240 billion per year, with a scale of more than in 2023. Under this assumption, the impact on banks' net interest margin is estimated to be 7 basis points, operating income 4%, and net profit 7% (annualised, excluding the offsetting effect of the reduction in deposit interest rates). Scenario 2: Assuming that the scope of re-mortgaging includes only first home loans making up roughly 90% of the existing home loans, it is estimated that the average reduction in the existing mortgage rate will be about 54 bps, which will chop the borrowers' interest expenses by about RMB200 billion per year. Under this assumption, the impact on banks' net interest margin is estimated to be 6 bps, operating income 3%, and net profit 7% (annualised, excluding the offsetting effect of the reduction in deposit interest rates). According to the above analysis, although the possible adjustment of the existing mortgage rates will have an impact on banks' interest margins, large state-owned banks, which have a higher share of mortgages than small- and medium-sized banks, will receive more influence from the adjustments to the existing mortgage rate. However, assuming that the cost of debt is adjusted in tandem, CICC expects the overall impact on spreads to be neutral. The broker recommended that investors take the opportunity to choose banks with higher dividends and stable asset quality after the stock price correction, including ABC (01288.HK), CCB (00939.HK), ICBC (01398.HK), CM BANK (03968.HK), HSBC, and Jiangsu Bank. AAStocks Financial News |
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