Shenwan Hongyuan Securities·2025-08-23 15:38Investment Rating - The report maintains a positive outlook on the banking sector, indicating a potential stabilization of ROE and a favorable investment environment for bank stocks [3][6]. Core Viewpoints - The banking sector is expected to enter a new cycle of stable ROE, with the average ROE projected to stabilize around 10% by the end of 2024, following a decline from over 20% in 2013 [3][7]. - The report emphasizes the importance of maintaining stable bank profits to support the economy and prevent systemic risks, highlighting that bank profits are crucial for fiscal support and capital replenishment [4][5]. - The report argues against the common misconception that declining ROE will continue indefinitely, attributing past declines to regulatory changes rather than a linear trend [3][7]. Summary by Sections Banking Sector Overview - The banking sector is described as the backbone of the economy, with profits primarily reinvested into the real economy through credit and capital replenishment [5][8]. - The report notes a decline in the core Tier 1 capital adequacy ratio for listed banks, indicating pressure on internal capital strength [11]. ROE Analysis - The report discusses the balance between profitability, risk, and capital in determining ROE, emphasizing the need for stable bank performance to support economic stability [5][6]. - It provides a detailed analysis of ROE trends, showing a decline from 20.7% in 2010 to an estimated 10% by 2024, influenced by regulatory changes and market conditions [7][31]. Profitability and Cost Management - The report highlights that banks have been managing profitability through cost control and provisioning strategies, with a shift from relying solely on provisions to maintaining revenue stability [6][14]. - It predicts a stabilization of net interest margins in the near term, with potential recovery in 2026 as deposit costs decrease [6][25]. Investment Opportunities - The report identifies specific banks with strong regional performance and stable profit growth as attractive investment opportunities, recommending banks like Chongqing Bank, Suzhou Bank, and Hangzhou Bank for their potential to recover to 1x PB [6][28]. - It also points out that the banking sector's current PE valuation is significantly undervalued compared to its ROE, suggesting a potential for valuation recovery [6][28]. Long-term Projections - The report estimates that to maintain a stable core Tier 1 capital adequacy ratio, banks need to sustain an ROE of approximately 10% over the next five years, with varying loan growth scenarios [18][22]. - It emphasizes that a slowdown in loan growth does not necessarily equate to lower ROE, as seen in comparisons with international banks [27][28].