PBOC to cut LPR by 15 bps next week, more downside risk seen on Chinese banks’ NIM, earnings – JPMorgan
MACRO POLICY & REGULATION STOCKS VIEWS & ANALYSIS
PBOC to cut LPR by 15 bps next week, more downside risk seen on Chinese banks’ NIM, earnings – JPMorgan
MACRO POLICY & REGULATION STOCKS VIEWS & ANALYSIS

PBOC to cut LPR by 15 bps next week, more downside risk seen on Chinese banks’ NIM, earnings – JPMorgan

 

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The People’s Bank of China on Tuesday cut the 7-day reverse repo rate by 10 bps and one-year medium-term lending facility (MLF) rate by 15 bps. 

The central bank is expected to lower the loan prime rate (LPR), the benchmark lending rate, by 15 bps next Monday, and the policy rate cuts signalled further downside risk on Chinese banks’ NIM and earnings, JPMorgan said in a note.

The Chinese government is responding to the recent debt defaults and sluggish credit growth and the expectation for further policy easing may support the short-term performance of Chinese banking shares. 

However, banks may encounter mounting earnings risks due to mortgage refinancing, rate cuts, potential restructuring on LGFV debts and potential uptick in the non-performing loan ratio for private developers, it said. 

A rally among Chinese banks, if it occurs, should be regarded as a profit-taking opportunity, especially for PSBC, which is more sensitive to rate cuts than its peers, it said.