even if Bank The NPL rate rose by 5-7 percentage points, and it will not impact capital and shareholders' equity.

The latest research report issued by 600030.SH, China's largest brokerage firm, said in August 19th that the ultra-low market rate of the banking industry has built a high margin of investment safety. With the inject of profits, bank shares will gradually lift the bottom area of valuation.

At present, the valuation level of bank stocks has reached the lowest point in history, which is already 1.6 times lower than the previous low of PB during the financial crisis in 2008. By the end of August 18th, the average PB of listed banks was 1.3 times in 2011, and the current share price of some banks was even less than 1 times that of PB in 2012. Investors' concern about asset quality is one of the most important reasons for the declining valuation of bank shares.

CITIC Securities believes that, given the multiple protection mechanisms in the banking sector, even in the future, Assets The deterioration and impact of quality will not be enough to erode bank profits and make it even less likely to affect net assets, even if the percentage of banks' bad rate rises by 5-7 percentage points does not constitute a capital shock.

First of all, provision adjustment can cope with a certain increase in non-performing loan ratio. Under the supervision of the counter cyclical regulation of the regulatory authorities, when the industry is facing a crisis, the dynamic provision reduction can provide a cushion for profit. According to CITIC Securities, assuming that the coverage rate of the industry is reduced to 100%, it can tolerate the industry's non-performing loan ratio rising to 2.5% without affecting the profit growth.

Secondly, the profit buffer provides protection for the stability of shareholders' rights and interests. CITIC Securities expects that the overall net profit of the banking sector will exceed trillion yuan in 2011, of which the listed banks will reach 800 billion yuan. According to its calculations, assuming that the loss rate of non-performing loans is 50%, the loss can be tolerated in the current period, and the non-performing loan rate of the industry can be increased to 5% when the capital is not eroded.

Finally, the cost compression provides further buffer. Banking cost About 65% of the cost is labor costs. If the industry goes to a low level, the future cost control can also alleviate the impact on capital to a certain extent.

According to the latest data released by the CBRC in August 11th, as of the end of 2011 6, the balance of non-performing loans of commercial banks in China was 422 billion 900 million yuan, and the overall non-performing loan ratio fell to 1%. Net profit in the first half of this year was 536 billion 400 million yuan (763 billion 700 million yuan in 2010). It can be said that the development trend of China's banking industry is very good.

International experience also shows that the phenomenon of banking stocks falling below net assets is only a short occurrence. Valuations are lower than net assets for a relatively long period.