Open Source Securities: Large bank funds recovery, non-banks shift towards regular deposits.

Open Source Securities released a research report stating that stable dividends are sustainable, and stable growth is driving the cyclical trend. Dividend assets represented by state-owned banks still have support, and the focus on stable growth policies is also driving the valuation recovery of banks. The bank expects the performance of the banking industry to be stable in Q1 2025, continuing the trend of steady growth in revenue and net profit in Q4 2024. There are two key points to consider at present: (1) the investment value of banks with stable profits and high dividends in a low interest rate environment is highlighted; (2) with the implementation of subsequent policies and improvement in economic expectations, high-quality regional banks may enjoy better performance flexibility. The main points of Open Source Securities are as follows: Liabilities: In March, large banks saw a significant outflow of non-bank deposits, leading to the issuance of new certificates of deposits and extending their maturity. In March, the negative difference between deposit and loan growth rates of large banks widened to the lowest level since July 2019 (-4.79%), with the four major banks at -5.83%. On the liability side, the growth of deposits in large banks decreased significantly year-on-year (739 billion yuan), mainly due to the accelerated outflow of non-bank deposits. Large banks actively issued interbank CDs to supplement their liabilities: (1) Non-bank deposits decreased more year-on-year, mainly due to the large-scale sell-off of wealth management products such as funds under the significant market correction in March, and the corresponding increase in personal and corporate demand deposits. (2) Bank liability strategies adjusted, with large banks showing a willingness to renew expiring interbank CDs and extend their maturity, reflecting certain pressure on liabilities. With restricted sources of high-interest non-bank deposits and the inefficiency of raising funds through financial bonds, banks are mainly relying on negotiable certificates of deposit (NCDs) for funds injection. Following the tight attitude of the central bank and accelerated government bond issuances in the preceding period, banks have tended to issue more interbank CDs to ensure liquidity risk indicators are met across quarters. Assets: While loans are growing rapidly, there may be profit-taking in bond investments. (1) Loan growth is rapid and shows momentum. In March, short-term loans of large banks increased by nearly 500 billion yuan year-on-year, while discounted bills decreased by nearly 200 billion yuan, driving credit expansion, possibly due to accelerated release of consumer loans in Q1. However, medium and long-term loans in large banks still saw a decrease year-on-year, indicating that there is still room for improvement in general entity demand. (2) Profit-taking behavior in bond investments. In March, bond investments of large banks decreased by 94.1 billion yuan year-on-year, possibly due to profit-taking during bond market fluctuations. Regional banks also exhibited similar characteristics. Funding: Large banks face a shortage of deposits but there are several reasons for increasing lending. Since large banks still appear to lack deposits (the marginal decline in the deposit-loan growth rate), why did the lending increase in March? The bank believes there are three main reasons: (1) primarily due to the loosening of the central bank's stance. It cannot be ruled out that there are guided lending to stabilize the funding market and the release of reserve requirement ratio expectations, reducing the precautionary liquidity demand of banks; (2) improvement in liability structure, interbank deposits shifting to general deposits. The return of deposits enhances liability stability; (3) end-of-month MLF net injection + government spending, providing excess reserves for large banks. The bank calculated an excess reserve rate of 1.1% in March, significantly lower than seasonal norms. Despite entering a slow season for loans in April, which is traditionally a month with high tax payments and the expiry of buy-back reverse repurchase agreements, the bank believes there is still a need for reserve requirement ratio cuts to provide medium to long-term liquidity for banks. Furthermore, amid the tariff disturbances, there is still room for further enhancement of stable growth policies. Risk warning: Downward trend in macroeconomic growth, policies falling short of expectations, etc.