Open source securities: stable and sustainable bank dividend, stable growth driving the business cycle.

Open-source Securities released a research report stating that the current policies in China are mainly within expectations, maintaining policy stability. There is still room for further reserve requirement ratio cuts and interest rate reductions in the future. Therefore, assets representing the state-owned behavior still have support. In addition, the efforts of the growth stabilization policy also drive the valuation recovery of banks. The decline in the banking sector is relatively limited, and under external disturbances, the defensive value of the sector is highlighted, making it more attractive in the long term. The Securities firm expects the performance of the banking industry in Q1 2025 to be relatively stable, continuing the momentum of steady growth in revenue and net profit in Q4 2024: (1) The pace of credit issuance has improved, but the focus is on optimizing the structure, with a decrease in arbitraged credit (such as bills); (2) The yield on the asset side is still under pressure, but after high-yield fixed deposits mature, the deposit interest rate may decrease, with a potential decline in interest rate spreads exceeding expectations; (3) Retail risk exposure is sufficient, coupled with strong disposal efforts, and the rebound in personal loans may be near its end; (4) OCI accounts still have floating bonds, and non-interest income still provides support. Continued optimism for the sustainability of dividend strategies. The main points of the open-source securities are as follows: 1. Credit issuance is expected to warm up marginally in March, and demand may still rely on corporate support. Credit forecast: New RMB loans in March are expected to be around 3.1 trillion yuan, with an annual growth rate of 7.2%, and a month-on-month decrease of 0.1 percentage point in comparison to February. In March, national bank bill discounts rates temporarily peaked, and the bank bill issuance behavior slowed down, indicating that there may not be weak demand for actual credit. Specific types include: (1) Corporate loans are expected to increase by around 2.3 trillion yuan. The reserve of bank projects for the year is relatively full, with some companies' annual investment and financing plans being implemented after the end of the two sessions, and the final demand for corporate credit may be released by the end of Q1. In addition, the issuance of local government bonds in Q1 has significantly accelerated, and the growth may be under pressure after some companies have replaced medium-to-long-term loans, but considering that some hidden debts exist in non-bank debt forms (companies' arrears), the overall disturbance of debt substitution is limited. (2) Retail loans are expected to increase by around 900 billion yuan, mainly contributed by mortgages. Although the sales area of residential properties is still negative year-on-year, the decrease in decline is continuing, with a significant improvement in the sales of real estate in first-tier cities; in addition, the interest rate gap between new and existing mortgage loans is narrowing, which may slow down the demand for early repayment of mortgages. In addition, consumer credit policies are gradually introduced, but there is still a lag from policy announcement to implementation, so the growth of consumer loans in March is expected to remain stable. (3) Non-bank loans are expected to decrease by around 100 billion yuan, with slower growth compared to the previous year. The People's Bank of China maintained currency policy stability in Q1 without implementing a reserve requirement ratio cut, leading to a tightening liquidity in the banking system, with increased volatility in bond yields and fund rates, and a decrease in the volume of interbank lending transactions lower than in previous years, which may affect the reading of non-bank loans. 2. Government bond issuance is accelerating, and it is expected that social financing will increase year-on-year. Social financing forecast: The new social financing in March is expected to increase by around 5 trillion yuan, with a growth rate of 8.2% year-on-year, similar to February. Under the fiscal guidance of "early issuance and use of special bonds by local governments," the issuance of government bonds for the year are prepositioned, with Q1 government bonds (national bonds + local bonds) issuance significantly accelerated, forming the main support for social financing. It is expected that the net financing of government bonds in March will increase by around 1.1 trillion yuan year-on-year, although the month-on-month rebound but the year-on-year increase is much higher. The incremental change in social financing may be similar to the same period in 2024, with limited disturbance in other sub-items, and the overall judgment is that the new scale of social financing in March is slightly higher than the same period in 2024. After the launch of a comprehensive package of incremental policies in October 2024, the growth rate of social financing has steadily increased month by month, and whether the future trend can be maintained depends on the effectiveness of existing policies and when the impact of overseas tariff policies will dissipate. 3. Fiscal deposits are disbursed, business operation is picking up, and it is expected that the growth rate of money supply will rise month-on-month. Money supply forecast: M2 is expected to grow by 7.1% year-on-year in March, with a month-on-month increase of 0.1 percentage points in comparison to February; the new M1 is expected to grow by 0.4% year-on-year, with a month-on-month increase of 0.3 percentage points in comparison to February. After the release of the new M1 calculation method, the growth rate of M1 in February was still declining month-on-month, mainly due to the accelerated issuance of special bonds, but there was still a delay in the disbursement of funds, and fiscal deposits had not yet flowed into the real economy for circulation. The firm predicts that the stage of the increase in money supply in March is mainly due to: First, the fiscal expenditure in the end of the quarter will increase, leading to the return of fiscal deposits to the banking system as demand deposits, coupled with the accelerated issuance of government bonds, some bond quotas are used to pay the arrears of companies, the liquidity and operational vitality of companies are marginally improved, supporting the increase in M1. Secondly, the improvement in credit demand and the recovery of deposit derivation intensity, as both sides of the bank's balance sheet, deposits and loans, simultaneously increase, leading to an increase in demand deposits. Thirdly, the impact of interbank deposit interest restrictions has already concentrated and fermented, the subsequent disturbance of non-bank deposits has diminished, providing support for M2.