Morgan Stanley-China Financials Further moderation in TSF growth good for ...-110333941

Investment Rating - The report assigns an "Attractive" investment rating to the industry [1]. Core Insights - The headline Total Social Financing (TSF) growth moderated to approximately 8% year-on-year (YoY) in August, indicating a more rational loan extension which is expected to stabilize loan yields [1][2]. - Government bond issuance is anticipated to be a primary support for investment and consumption in the second half of 2024 [1]. - The report forecasts TSF growth to remain around 8% for 2024, with a potential decline below this level, which is viewed positively for the long-term sustainability of the financial system [1][2]. - Credit growth is expected to slow to approximately 7% in 2025, which will help close the gap between credit supply and demand, thereby supporting loan yields through more market-oriented pricing by banks [1]. Summary by Sections TSF Growth and Loan Dynamics - TSF growth moderated to 8.1% YoY in August, with RMB loan growth also at 8.1% YoY [2][3]. - The moderation in loan growth is attributed to efforts to reduce self-circulating loans and a rationalization of loan growth as banks focus on risk containment [1][3]. - Long-term corporate loans remain weak, influenced by policies on capacity control and fair competition rules [1]. Government Bonds and Investment Support - Government bond issuance increased by 15.8% YoY, providing significant support for investment and consumption [2][3]. - The report highlights that government bonds will likely be utilized to bolster investment and consumption in the latter half of 2024 [1]. Household and Corporate Deposits - Household deposit growth remained stable at 10.9% YoY in August, while corporate deposits declined by 3.9% YoY [1][11]. - The stability in household deposits is seen as a positive indicator for fee income rebound in the second half of 2024 [1]. Loan Types and Trends - Short-term household loans saw a significant decline of 52% YoY, while long-term household loans are experiencing a slower decline [1][11]. - The report notes that mortgages are gradually stabilizing, attributed to lower early repayments and some recovery in demand due to lower mortgage rates [1]. Valuation Comparisons - The report includes valuation comparisons for various Chinese banks, indicating a range of price-to-earnings (P/E) and price-to-book (P/B) ratios, with several banks rated as Overweight (OW) [12][13].