BANK OF CHINA(601988) 中国银行·2024-06-14 06:03Investment Rating - The report maintains a "Buy" rating for certain banks, specifically highlighting BONB and CCB, while rating ICBC and ABC as "Sell" and CMB as "Neutral" [128][132]. Core Insights - The total onshore local government debt is estimated at Rmb 102 trillion, reflecting an 8% increase from prior estimates, driven by a net increase of Rmb 6 trillion in official government debt [117][119]. - The report anticipates a continued decline in net interest margins (NIM) for covered banks, projecting a decrease to 1.4% by 2026 from 1.7% in 2023, due to higher local government debt growth and lower yields [127][128]. - A capital shortfall of Rmb 0.3 trillion is expected for covered banks over 2024-26, necessitating new capital to manage losses and maintain dividends [129][132]. Summary by Sections Local Government Debt - Local government debt has increased significantly, with covered banks growing their local government debt by Rmb 4.4 trillion, a 13% increase from previous estimates [119][120]. - The share of local government debt held by large SOE banks has risen to 33%, while non-covered banks have reduced their exposure to 62% [120]. NIM and Capital Requirements - The report projects a further decline in NIM for covered banks, estimating decreases of 16, 7, and 1 basis points for 2024E, 2025E, and 2026E respectively [7][8]. - Covered banks are expected to release Rmb 0.7 trillion in capital annually, positively impacting their CET1 ratio by 18 basis points each year through 2026 [128]. Property Loans and Losses - The report outlines three scenarios for property loan growth, with estimates of Rmb 2.2 trillion, Rmb 4.5 trillion, and Rmb 6.5 trillion in new property loans over the next three years [36][44]. - A projected loss of Rmb 0.3 trillion is anticipated on the Rmb 4.5 trillion in new property loans, with an implied non-performing loan (NPL) ratio of approximately 6% [23][128]. Capital Management - The report indicates that banks may need to lower their target CET1 ratios to release more capital, which could raise concerns about asset quality and leverage [11][47]. - Convertible bonds have been a popular method for banks to raise new capital, comprising 60% of total new capital raised in the past five years [88][129].