There are two banking US stocks in MT4, namely: Bank of America (#BAC) and Citigroup (#C).
Banks are mainly engaged in the business of absorbing public deposits and issuing short-, medium-, and long-term loans. Therefore, the key to analyzing the future trend of bank stocks is to judge the trend curve of the company’s deposit interest rate and loan interest rate, and then judge the change in the bank’s main business profit space .
Foreign exchange traders are no strangers to the Fed's interest rate cut policy, and this term often appears on major financial websites. Although the interest rate cut has a positive effect on economic recovery, it has a negative impact on the bank's main business. This is because the decrease in loan interest rates will lead to a decrease in the loan interest released; the decrease in deposit interest rates inhibits the public's willingness to deposit, resulting in banks not receiving sufficient deposit funds.
For example, from January to March 2020, all bank stocks in the world have experienced a sharp decline, because during that time, the central banks of various countries have chosen to urgently lower their benchmark interest rates in response to the sudden new crown epidemic.
Since the benchmark interest rate in the United States is 0.25%, which is at a very low level, and the range of deposit and loan interest rates is small, which is not conducive to the demonstration of popular science articles, we have found a curve chart of China's deposit and loan interest rates to explain.
As can be seen from the figure above, China's deposit interest rate has experienced three major declines:
For the first time, from 1995 to 1999, the interest rate fell from 10.98% to 2.25%. Reason: Southeast Asian financial crisis
The second time, from 2007 to 2009, the interest rate fell from 4.4% to 2.25%. Reason: the subprime mortgage crisis
For the third time, from 2011 to 2015, interest rates fell from 3.5% to 1.5%. Reason: European debt crisis
Take Ping An Bank with the longest history in the A-share market (Shenzhen Development Bank before 2012). During the first decline in deposit rates, its stock price fell from 49 yuan to 12.1 yuan (without restitution), a decrease of 75.3%; During the second interest rate decline, the stock price fell from 48.98 yuan to 8.3 yuan (without restoring rights), a decrease of 83.05%; during the third interest rate decline, the stock price fell from 26.73 yuan to 8.52 yuan (without restoring rights), a decrease of 68.12%
。
It can be concluded that the rise and fall of deposit interest rates can play a decisive role in the stock price trend of listed banking companies.
During each round of deposit interest rate declines, loan interest rates also showed a similar downward trend, but the rates of decline of the two are not exactly the same. In 1995, the deposit interest rate was 10.98% and the loan interest rate was 12.06%, a difference of 1.08% between the two. By 2019, the deposit interest rate was 1.5% and the loan interest rate was 4.35%, which was a difference of 2.85%.
It can be seen that the difference between deposit and loan interest rates in 2019 is twice the difference between deposit and loan interest rates in 1995. If the analysis is based on the interest rate difference alone, then the profits of the main business of listed banking companies are constantly expanding.
The fact is also true. In the case of forward restoration, Ping An Bank's stock price in 1995 was -0.43 (a negative number caused by restoration), and the current market price was 22.47, a very large increase. From the perspective of the scale of deposits, it was 15.81 billion yuan in 1995 and 2.46 trillion yuan in 2019, which is also a huge increase.
It can be added here that although Ping An Bank has the longest listing history, ICBC has the largest amount of deposits, which was 22.98 trillion yuan in 2019. From this we can conclude that the enlargement of the deposit and loan spread will help the stock price of listed banks to rise.
The long-term decline in deposit and loan interest rates will lead to a decline in residents’ willingness to deposit. However, due to the central bank’s monetary easing policy, the economy’s M2 currency growth rate is too fast, which offsets the “deposit absorption” project caused by the decline in deposit willingness. cut back.
It can be seen that since 1995, China's total M2 has maintained a rapid rise. The curve in the graph above explains why the benchmark rate is declining, but bank deposits are continuously increasing.
The latest M2 total is 218.7 trillion yuan. As we mentioned above, ICBC’s total deposits are 22.98 trillion yuan. This also means that ICBC’s resident deposits account for more than 10% of all funds in the market. People call it "the largest industry in the universe."
summary
Banking listed companies can not only make profits through the interest rate difference between deposits and loans, but also make profits through intermediate business (non-interest business).
From a macro point of view, most listed banking companies in the United States rely on intermediary businesses to increase their profits, while Chinese listed banking companies still rely on interest margins to increase their profits. Since non-interest business is active income, the key to measuring whether a listed bank company is suitable for investment is to pay attention to the performance of its intermediate business in addition to the deposit interest rate curve and M2 mentioned above.