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01658 PSBC
RTNominal down4.860 -0.070 (-1.420%)

30/12/2019 17:42

{I-bank focus}Banks' pricing capability test seen in Mar-Aug

[ET Net News Agency, 30 December 2019] The PBOC requires banks to convert all existing
loans to LPR (Loan Prime Rate)-based pricing by 31 August 2020.
Morgan Stanley said the ability to renegotiate pricing for all existing non-mortgage
loans means that the recent LPR cuts will not automatically be passed on to all borrowers.
It thinks banks will likely convert a portion of loans to fixed-rate and still balanced
credit supply and demand should support new loan yields, as evident in still stable yields
in recent quarters.
In addition, Morgan expects banks to be more cautious about future LPR submission and to
focus on their total cost base, as each LPR change after August 2020 will affect a much
larger portion of loans.
The research house said the concentrated loan price renegotiations between March and
August 2020 will be a true test of banks' loan pricing capability. It believes that banks
with more market-oriented operations, a higher portion of retail loans, more mature
asset/ability pricing processes and strong core systems with consolidated client data will
do better than peers.
Morgan said China Merchants Bank (03968), Ping An Bank (Shenzhen code: 000001) and
Postal Savings Bank of China (01658) will be less affected, and ICBC (01398) and CCB
(00939) should fare better among state-owned banks due to good IT and data.
Morgan believes loan pricing will be key driving divergence in NIM (net interest
margin), ROE (return on equity), internal capital generation and, hence, future market
share as well. (KL)

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