Zhongtai: It is expected that high-dividend safe-haven assets will continue to dominate. Banks are focusing on three key clues.

Zhongtai released a research report stating that the economic inertia continued in the first half of the year, and it is expected that high-dividend safe-haven varieties will still have an advantage. At the same time, in combination with the current market preferences and the divergent expectations for the future economy, the following three clues can be derived: high-dividend banks: major banks, Chongqing Rural Commercial Bank (601077.SH), etc.; city commercial banks with locational advantages and strong certainty: Bank Of Jiangsu (600919.SH), etc.; core assets: China Merchants Bank (600036.SH). Zhongtai's main points are as follows: Asset quality: overall stable and improving, attention to the decline in non-performing loans. At the end of Q4 2024, the total amount of non-performing loans in the entire banking industry was 3.28 trillion yuan, a decrease of 97.7 billion yuan from the end of Q3 2024, with a non-performing loan ratio of 1.50%, a decrease of 5 basis points from the previous quarter, of which rural commercial banks decreased by 24 basis points, reflecting that the risk resolution in rural finance has achieved certain results. It is estimated that the single-season net generation rate of non-performing loans for the entire banking industry in Q4 2024 after adding back write-offs is 0.57% / 0.68%, a decrease of 13 basis points / 3 basis points from Q3 2024; a decrease of 13 basis points/5 basis points year-on-year. At the end of Q4 2024, the proportion of loans in the observation category was 2.22%, a decrease of 6 basis points from the end of Q3 2024. At the end of Q4 2024, the overall provision coverage ratio of the banking industry was 211.19%, an increase of 1.71 percentage points from the previous period, mainly due to the contribution of rural commercial banks. Net interest margin: basically stable, a slight decrease of 1 basis point to 1.52% compared to the previous quarter. The industry's net interest margin in Q4 2024 was 1.52%, a decrease of 1 basis point from the previous quarter. The first quarter is the main stage of loan repricing for banks. It is expected that the bank's interest margin will continue to decline. However, after the first quarter, under the influence of multiple factors such as the previous multiple rounds of deposit rate cuts, manual interest adjustment, and interbank deposit rate cuts, it is expected that the interest margin will gradually stabilize. Scale: Growth rate is declining, and commercial banks and city commercial banks are increasing their allocation of bonds. In Q4 2024, due to the early repayment of bonds, the industry's asset and credit growth rates have declined. The year-on-year growth rate of the industry's assets in Q4 2024 decreased by 0.8 percentage points to 7.2%, and the year-on-year growth rate of credit decreased by 0.7 percentage points to 7.5%. However, in the fourth quarter, the bond market interest rates fell rapidly, and city commercial banks and commercial banks were relatively flexible in bond operations, effectively hedging the decline in loans. The year-on-year growth rate of total assets increased by 0.1 percentage points compared to the third quarter. Net profit: Overall industry growth rate turned negative, mainly dragged down by city commercial and rural commercial banks, with increased differentiation between sectors. In Q4 2024, the year-on-year growth of net profit of commercial banks was -2.27% (compared to +0.48% in Q3 2024). Looking at different sectors, the year-on-year growth rates of net profit of state-owned banks, commercial banks, city commercial banks, and rural commercial banks were -0.47%, +2.37%, -13.13%, and -9.75% respectively. Compared to the third quarter, the changes were 0.85, 1.15, -16.52, and -12.65 percentage points respectively, showing increased differentiation between sectors. The decline in major banks continued the trend of narrowing since the second quarter of this year, and the growth rate of commercial banks increased in the fourth quarter due to the bond bull market and relatively low base. City and rural commercial banks were affected by regional bond issues and the impact of base effects, resulting in a decrease in growth rate. Capital: Capital adequacy ratio continues to increase. With the slowdown in balance sheet expansion and the support of new capital regulations, the industry's capital adequacy ratio continues to rise. At the end of Q4 2024, the core Tier 1 capital adequacy ratio, Tier 1 capital adequacy ratio, and capital adequacy ratio of commercial banks (excluding foreign bank branches) were 11%, 12.57%, and 15.74% respectively, an increase of 13 basis points, 14 basis points, and 12 basis points from the end of Q3 2024. Risk warning: Economic downturn exceeds expectations, and the research report may not be updated in a timely manner.