China Banks:Symmetric 25bps rate cut along with 50bps RRR cut

25bps symmetric rate cut with removal on deposit rateceilings for those with over 1-year tenor.

    We believe the removal of deposit rate ceilings for those with over 1-yeartenor should have managed impact on NIM and NPAT in FY15-16E giventhat none of the listed banks have floated their deposit rates to the upper endof 1.5x as of today. We estimate the rate cut together with the removal ofdeposit rate ceilings should have 0.5%-1% impact on H-share China banks’FY15E NPAT on static basis. More importantly, we continue to believe thatthe rate cut should help alleviate asset quality pressure for China banks as itshould help reduce the funding cost for enterprises to some extent. GivenCPI readings at 1.6% in July 2015, there should be smaller room for furtherrate cut in the rest of the year.

    Well-expected RRR cut in light of the rising SHIBOR.

    We judge the 50bps general RRR cut together with the extra 50bps RRR cutfor county-level rural commercial banks, rural cooperative bank, rural creditcooperatives and village banks as well as the extra 300bps RRR cut for autofinance companies should release around RMB800bn liquidity, and frombanks’ perspective, this should help increase FY15E NPAT by 0.2-0.3%.

    Neutral to slightly positive impact on China banks.

    Overall, we see PBOC’s move as neutral to slightly positive for H-shareChina banks as, on the one hand, the negative impact from the rate cut andthe removal of the deposit rate ceilings should be partially offset by thepositive impact from RRR cut, and on the other hand, the lower interest rateshould help reduce the financing cost for enterprises and thus relieve assetquality pressure for China banks.