CICC: Focus on Large Banks and Joint-Stock Banks with Strong International Capabilities

CICC Research believes that on balance, the policies announced at this year's Lujiazui Forum center on risk prevention and expanded opening-up. For banks, offshore finance, digital RMB cross-border applications, and the global allocation of RMB-denominated assets present new business opportunities. Meanwhile, efforts to curb disorderly financial competition will help ease the price war in deposits and loans, protecting bank net interest margins and operating quality. CICC recommends focusing on large banks and joint-stock banks with strong international capabilities, as well as regional banks operating in areas with high economic vitality and resilient net interest margins.

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CICC: Financial Signals from the Lujiazui Forum

CICC Research

The Lujiazui Forum on June 17 delivered a concentrated package of major financial policies. CICC believes the overall tone of this year's forum emphasizes risk prevention and expanded opening-up, signaling significant implications for the banking sector.

Offshore Finance Opens a New Track

Six government agencies jointly issued the "Action Plan for Building an Offshore Financial Hub in Pudong," identifying six categories of prioritized pilot businesses including offshore bank lending, offshore bond underwriting, and offshore wealth management. This marks Shanghai's official entry into the offshore financial arena. CICC believes this move will help financial institutions with strong international service capabilities, represented by large state-owned banks and leading joint-stock banks, to expand cross-border financial services, increase sources of non-interest income, and improve their comprehensive service capabilities for serving Chinese enterprises going global.

New Progress in Cross-Border Application of Digital RMB

PBOC Governor Pan Gongsheng announced at the forum that the central bank will "actively and steadily advance cross-border payment applications of the digital renminbi." CICC believes that the cross-border application of the digital RMB is one of the key pillars for building a new international payment and settlement system. Once the cross-border digital RMB matures, it will significantly reduce the costs and time associated with cross-border trade settlement, strengthen the linkage between onshore and offshore RMB markets, and create substantial opportunities for banks' settlement, custody, and liquidity management businesses.

Global Allocation of RMB Assets Accelerates

The forum released multiple measures to facilitate inward and outward investment, including further expanding the scope of the QFII and QDII programs, optimizing the Bond Connect mechanism, and expanding the pilot program for foreign investors to participate in China's interbank bond market repo. CICC believes this series of opening-up measures will attract more foreign capital to allocate to the domestic financial market, and the growth in foreign holdings of RMB bonds will directly expand the asset custody and related service market for domestic custodian banks. At the same time, the increased participation of foreign institutions will also drive higher standards of domestic financial services.

Disorderly Financial Competition to Be Rectified

A notable signal from the forum is that financial regulators have repeatedly emphasized the need to curb irrational price competition in the financial sector and maintain a reasonable level of bank net interest margins. CICC believes this policy signal is a positive for the banking sector: on one hand, it will slow the downward trend in lending rates and help stabilize NIMs; on the other hand, it will reduce the pressure on banks to engage in high-cost deposit solicitation and improve overall liability quality.