Core Viewpoint - The trend of major banks in China, including Industrial and Commercial Bank of China, China Merchants Bank, and CITIC Bank, is to withdraw five-year large denomination certificates of deposit (CDs) and shorten the maximum term of available CDs to two years, in response to declining interest margins [1][3]. Group 1: Bank Actions - Major banks are actively reducing long-term liabilities by lowering the interest rates on long-term large denomination CDs or even suspending the issuance of three and five-year products to mitigate the risk of future cost-revenue inversion [1][4]. - As of recent searches, five-year large denomination CDs are no longer available on the apps of major state-owned banks, with the longest available term being three years at a rate of 1.55% [1]. - China Merchants Bank has also removed three and five-year large denomination CDs from sale, currently offering only products with terms of two years or less, with rates below 2.15% [3]. Group 2: Interest Rate Trends - The average interest rates for one-year, two-year, three-year, and five-year large denomination CDs are reported as 1.719%, 1.867%, 2.197%, and 2.038% respectively, indicating a general decline in rates [4]. - The interest rates for three-year large denomination CDs have decreased by approximately 80 basis points compared to the same period in 2024, with current rates concentrated between 1.55% and 1.8% [3]. - The latest seven-day annualized yield for Tianhong Yu'ebao has reached 1.18%, which is close to the one-year large denomination CD rate of 1.2%, highlighting the diminishing advantage of large denomination CDs in terms of interest rates [3]. Group 3: Industry Context - The banking sector is currently facing low net interest margins, with the net interest margin further declining to 1.43% in the first quarter of 2025, down 9 basis points from the end of 2024 [4]. - The pressure on net interest margins is exacerbated by the continuous decline in loan yields due to multiple reductions in the Loan Prime Rate (LPR), while the trend of increasing fixed-term deposits intensifies the burden of high-interest liabilities [4][5]. - The suspension of five-year large denomination CDs and the reduction of medium to long-term deposit products are necessary measures for banks to lower funding costs and stabilize net interest margins [5].

Summary of Key Points from Conference Call Industry Overview - The conference call primarily discusses the fixed income market and interest rate trends in the context of the broader financial environment in China, particularly focusing on government bonds and corporate financing costs. Core Insights and Arguments - **Interest Rate Trends**: There is a prevailing expectation that interest rates will continue to decline, with current rates for certain bonds nearing historical lows. For instance, the rate for 30-year government bonds is approximately 1.9% and for corporate bonds like Shidai New Materials, it is around 1.66% [3][12]. - **Market Dynamics**: The decline in interest rates is attributed to easing concerns at the end of the quarter and the central bank's liquidity support. Banks have been buying older bonds, especially short-term ones, due to reduced pressure on profitability [2][4]. - **Impact of Deposit Rates**: The rapid decrease in deposit rates, with major banks reducing rates by 50 to 70 basis points, has significantly lowered overall funding costs in the market. This trend is expected to continue, further affecting fixed income asset yields [7][8]. - **Corporate Financing Costs**: As corporate financing costs decrease, financial institutions face challenges in balancing liabilities and net interest margins. The decline in funding costs is a key factor driving down overall market yields [6][10]. - **Broad vs. Policy Interest Rates**: Broad interest rates, which include yields on loans and other alternative assets, are more reflective of market conditions than policy rates, which tend to lag behind. Currently, actual funding costs are higher than the policy benchmark by approximately 1.4% [5][12]. - **Future Market Expectations**: The market anticipates a new downward phase for interest rates, driven by changes in supply and demand dynamics and increased liquidity from the central bank. The government bond supply is expected to slow down in the third quarter [3][14]. Additional Important Insights - **Insurance Sector Impact**: The insurance industry has seen a reduction in preset rates to around 2.13%, which may further decrease, affecting the cost of liabilities and the return expectations for financial institutions [10]. - **Net Interest Margin Trends**: Banks have experienced a decline in net interest margins, with the average dropping to about 1.4% in the first quarter, indicating pressure on profitability due to lower asset yields [11]. - **Trade Negotiations**: The impact of U.S.-China trade negotiations on the Chinese bond market is considered limited in the short term, with a focus on actual trade data rather than negotiation progress. Investors are advised to adopt strategies that leverage short-term positions while extending duration on long-term bonds [15].

Core Viewpoint - The company reported a slight decline in revenue for Q1 2025, but maintained positive growth in net profit and net interest income, indicating stability in its financial performance despite challenges in non-interest income [1][2]. Financial Performance - Q1 2025 revenue growth rate was -1.0%, while net profit growth rate was +1.5% and net interest income growth rate was +2.5% [1]. - Non-interest income decreased by 6.8%, with fee income down by 2.4% [2]. - Credit costs improved, with credit impairment losses down by 12% year-on-year, contributing to net profit growth that outperformed the average of major banks [2]. Scale and Growth - Total assets grew by 2.6% compared to the beginning of the year, with loans increasing by 4.2%, adding 116.9 billion [2]. - Retail loans showed stable growth, particularly in housing, consumer, and business loans, while credit card loans contracted due to seasonal factors [2]. Interest Margin - The net interest margin for Q1 was 1.23%, a decrease of 4 basis points compared to the full year of 2024, but the decline was less than that of peers [3]. - The cost of liabilities improved significantly, with the deposit cost rate down by 21 basis points year-on-year, helping to stabilize the interest margin [3]. Non-Interest Income - Non-interest income saw a decline of 2.4%, but the decrease is expected to stabilize, particularly in wealth management-related fees [3]. - Other non-interest income dropped by 10.6%, primarily due to losses from fair value changes influenced by bond market fluctuations [3]. Asset Quality - The non-performing loan (NPL) ratio decreased by 1 basis point to 1.30%, with a stable provision coverage ratio of 200% [1][4]. - Personal loan NPL ratio increased by 10 basis points to 1.18%, indicating rising risks in retail loans, although the overall impact on total NPL generation is expected to be limited [4]. Investment Outlook - The company is positioned as a stable dividend asset with high dividends and low valuation, projecting a dividend yield of 4.3% for A shares and 5.2% for H shares [4]. - The current price-to-book (PB) ratios for A and H shares are 0.57x and 0.48x, respectively, supporting a "buy" rating [4].

Investment Rating - The report maintains a "Buy" rating for Chengdu Bank, indicating an expectation that the stock will outperform the market index by more than 15% in the next six months [10]. Core Insights - Chengdu Bank reported a revenue of 22.982 billion yuan in 2024, a year-on-year increase of 5.89%, and a net profit attributable to shareholders of 12.858 billion yuan, up 10.17% year-on-year [3][6]. - In Q1 2025, the bank achieved a revenue of 5.817 billion yuan, reflecting a growth of 3.17%, and a net profit of 3.012 billion yuan, which is a 5.64% increase year-on-year [3][6]. - The bank's asset quality remains strong, with a non-performing loan ratio of 0.66% and a provision coverage ratio of 456% as of Q1 2025 [6][8]. Summary by Sections Financial Performance - Chengdu Bank's total assets, loans, total liabilities, and deposits grew by 13.25%, 17.26%, 12.87%, and 15.60% respectively in Q1 2025, compared to 14.56%, 18.99%, 14.15%, and 13.51% in 2024 [6]. - The net interest margin for 2024 was 1.66%, down 15 basis points year-on-year, while the asset yield was 3.84%, down 18 basis points [6][8]. Investment Valuation - The expected earnings per share (EPS) for 2025 is projected at 3.23 yuan, with a price-to-earnings (PE) ratio of 5.34 times [9]. - The bank's projected book value per share (BVPS) for 2025 is 21.51 yuan, leading to a price-to-book (PB) ratio of 0.80 times at the current stock price [9]. Dividend and Returns - Chengdu Bank plans to distribute a dividend of 0.89 yuan per share for 2024, resulting in a dividend yield of 5.16% based on the closing price on April 29, 2025 [6][9].