Orient: Profit performance of the banking industry varies, risk indicators improve.

Orient issued a research report stating that the current period is entering a phase of intensive implementation of stabilizing growth policies, with loose monetary policy taking the lead, followed closely by loose fiscal policy. The localization of debts is accelerating significantly, which is having a profound impact on the fundamentals of the banking sector in 2025. The central government still has considerable room to increase the fiscal deficit ratio, and incremental fiscal policies are worth anticipating as they will support social financing and credit while boosting economic expectations. Cyclical sectors are expected to benefit from this. There is a broad downward trend in interest rates, putting short-term pressure on banks' net interest margins. However, high-interest deposits entering a period of concentrated repricing combined with ongoing regulatory crackdown on high-interest deposit-taking behavior will be important for protecting banks' interest margins in 2025. The year 2025 will be a year of solidifying asset quality for banks. With policy support, the risk expectations of real estate and urban investment assets are expected to significantly improve. Some categories of individual loans with sufficient risk exposure and disposal are also expected to reach a turning point in asset quality. At present, the focus should be on three investment themes: 1) high dividend stocks, 2) cyclical sectors and high-quality city commercial banks, and 3) sectors with improved risk expectations. Orient's main points are as follows: - Net profit decreased by 2.3% year-on-year, with performance differentiation between state-owned banks and urban and rural commercial banks. - As of Q4 2024, the growth rate of total assets and liabilities of commercial banks both decreased by 0.8 percentage points to 7.2% and 7.3% respectively. The growth rate of loans decreased by 0.5 percentage points to 7.6%. State-owned banks, joint-stock banks, urban commercial banks, and rural commercial banks all saw a slight decline in loan growth rate. - Pressure from narrowing interest margins is manageable, with the overall net interest margin of commercial banks in 2024 at 1.52%. - Asset quality indicators are improving, with noticeable improvements in rural commercial banks. - The risk-weighted asset growth rate is at a low point, and the capital adequacy ratio continues to improve. Risk warning: Unexpected tightening of monetary policy; fiscal policy falling short of expectations; risks related to changes in assumptions affecting the calculation results.