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1、Deutsche Bank Markets Research Asia Hong Kong Banking / Finance Banks Industry Chinese Banks Date 22 February 2018 Industry Update “What if” series II What if big banks raise capital? A persisting concern, but it is not likely, nor a bad thing; stay positive _ Deutsche Bank AG/Hong Kong Deutsche Ban
2、k does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment dec
3、ision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017. THE CONTENT MAY NOT BE DISTRIBUTED IN THE PEOPLES REPUBLIC OF CHINA (“THE PRC”) (EXCEPT IN COMPLIANCE WITH THE APPLICABLE LAWS AND REGULATIONS OF PRC), EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG
4、AND MACAU. Hans Fan, CFA Research Analyst (+852 ) 2203 6353 hans.fan Jacky Zuo Research Analyst (+852 ) 2203 6255 jacky.zuo Edward Du Research Associate (+852 ) 2203 6185 edward.du Top picks Bank of China (3988.HK),HKD4.42 Buy Agri. Bank of China (1288.HK),HKD4.49 Buy Source: Deutsche Bank Companies
5、 Featured ICBC (1398.HK),HKD7.11 Buy China Construction Bank (0939.HK),HKD8.56 Buy Agri. Bank of China (1288.HK),HKD4.49 Buy Bank of China (3988.HK),HKD4.42 Buy Bank of Communications (3328.HK),HKD6.41 Buy China Merchants Bank (3968.HK),HKD33.95 Hold China CITIC Bank (0998.HK),HKD6.00 Hold China Min
6、sheng Bank (1988.HK),HKD8.38 Hold CEB (6818.HK),HKD4.18 Hold Chongqing Rural Bank (3618.HK),HKD6.55 Buy Huishang Bank (3698.HK),HKD4.18 Sell Bank of Chongqing (1963.HK),HKD6.76 Hold Shanghai Pudong Bank (600000.SS),CNY12.46 Hold Ping An Bank (000001.SZ),CNY12.00 Hold Industrial Bank (601166.SS),CNY1
7、7.72 Sell Bank of Beijing (601169.SS),CNY7.30 Buy Bank of Nanjing (601009.SS),CNY9.01 Sell Bank of Ningbo (002142.SZ),CNY19.91 Sell Source: Deutsche Bank We value Chinese banks using a three- stage GGM (PV= (ROE-g)/(COE-g), with target prices based on 2018E book values. Downside risks: inflation, la
8、rge- scale DES on government intervention, over-tightening and property price correction. Upside risks: SOE reforms and removal or softening of GDP targeting. Possible capital raising by big-four banks has been among the key discussion topics with investors, especially when valuations approach 1x PB
9、. Many investors are still concerned about misuse of proceeds to recognize more bad loans and potential dilution. However, we believe big banks are unlikely to raise common equity in the near term, given their ability to self-generate capital with an ROE of 12-15% and limited regulatory pressure (c.
10、300bps buffer of CET-1). That said, even if it happens the capital raising would not necessarily be negative. The asset quality of big banks is improving so that stronger capital could strengthen financial stability. We stay positive on deposit-funded banks. Base-case scenario: no need to raise core
11、 common equity Our assumption of no capital raising is rooted in four reasons: Big banks are able to self-generate capital, as their ROEs of 12-15% are higher than the minimum ROE of c.11% required to sustain asset expansion. We forecast big banks CET-1 ratio will rise to 12.7% in 2019E (3Q17: 12%).
12、 Big banks CET-1 ratio is c.300bps higher than the minimum regulatory requirement. Total Loss-Absorbing Capacity (TLAC) likely kicks in seven years later, and we expect big banks to meet the targets smoothly. RWA density (RWA/total assets) has been declining due to a shift in loan book towards retai
13、l loans and the implementation of internal-rating-based approach (IRB). This implies less capital consumption than in the past. Capital raising by big banks would add pressure on Chinas fiscal positions, as the central government owns 71% of big banks, on average. What if capital raising materialize
14、d? Not necessarily a bad thing If the capital raising plans were indeed announced, which might start with ABC (the bank with the lowest CET-1 among big banks), fundamentally we do not view it a negative surprise. In the past, the markets concern on capital raising was due to the fear of the misuse o
15、f capital to recognize more NPLs, as the market perceived the reported NPL ratio as understated. But now, the asset quality of big banks is improving, as evidenced by the lower NPL formation. As such, stronger capital is actually positive to enhance system financial stability. Smaller banks under ca
16、pital pressure; positive catalysts: CCyB and D-SIBs In contrast with big banks, smaller banks are under notable capital pressure due to heavier shadow banking exposure and tighter regulations (see our report “Mounting capital pressure”). We have noted that listed smaller banks already proposed Rmb957bn capital raising plans which have not been completed (Fig 1
