After a lapse of 12 years, the excess reserve ratio will be lowered again. In the industry, banks will be forced to increase loans.
Sino-Singapore Jingwei client April 4 (Wei Wei) Every Friday, there will be major events. On April 3, the central bank released two heavy news. First, it lowered the deposit reserve ratio for small and medium-sized banks by 1 percentage point and released long-term funds. About 400 billion yuan; Second, since April 7, the interest rate of excess deposit reserve of financial institutions in the central bank has been lowered from 0.72% to 0.35%.
Less than 20 days later, the central bank announced the targeted cuts to required reserve ratios again, and after a lapse of 12 years, it resumed lowering the interest rate of excess deposit reserve. What is the significance behind the central bank? What impact will it have on the people’s money bags?
Small and medium-sized banks were selected for the third RRR cut during the year.
It is reported that this RRR cut is the third RRR cut during the year. On January 1 and March 16 this year, the central bank conducted a comprehensive RRR cut and a inclusive finance targeted cuts to required reserve ratios respectively, which released 800 billion yuan and 550 billion yuan respectively.
Only after more than half a month, the central bank once again to the small and medium-sized bank targeted cuts to required reserve ratios. The specific content is to reduce the deposit reserve ratio by 1 percentage point for rural credit cooperatives, rural commercial banks, rural cooperative banks, rural banks and city commercial banks operating only in provincial administrative areas, and implement it twice on April 15 and May 15, with each reduction of 0.5 percentage point, releasing a total of about 400 billion yuan of long-term funds. According to the introduction of the central bank, after the RRR cut, the deposit reserve ratio of more than 4,000 small and medium-sized deposit-taking financial institutions dropped to 6%.
On March 31st, the the State Council executive meeting decided to further strengthen the inclusive financial support measures for small and medium-sized enterprises, including further implementing the targeted cuts to required reserve ratios for small and medium-sized banks, and guiding small and medium-sized banks to provide loans to small and medium-sized enterprises with a wide range of preferential interest rates.
"This RRR cut is the third RRR cut this year. Such a high-frequency RRR cut not only reflects the gradual exertion of countercyclical regulation, but also shows the urgency of epidemic prevention and control and economic recovery and development." Wen Bin, chief researcher of China Minsheng Bank, told Zhongxin Jingwei client.
Why did small and medium-sized banks choose this RRR cut? Wen Bin explained that on the one hand, due to the large number of small and medium-sized banks, the number of them accounts for 99% in the banking system, and they are rooted in the grassroots and are inherently inclusive, which is an unattainable force for serving small and medium-sized enterprises at the grassroots level; On the other hand, on March 16th, targeted cuts to required reserve ratios, both large banks and joint-stock banks received a large degree of preferential reserve ratio, so this targeted cuts to required reserve ratios targeted at small and medium-sized banks. The release of long-term funds through this RRR cut will help support small and medium-sized banks to better focus on their main business, increase credit supply to small and medium-sized enterprises, reduce financing costs, and achieve accurate relief.
Li Qilin, chief economist of Yuekai Securities and president of the research institute, analyzed that in 2018-2019, the supervision continued to strengthen the importance of inclusive finance, and after the inclusive finance loan requirements were put forward for banking financial institutions, all banks and small banks were making efforts in inclusive finance business. However, big banks have cheaper liabilities, are more willing to invest, and can quote lower loan interest rates to small and micro enterprises. In contrast, the competitiveness of small banks is obviously weaker, and it is more difficult to achieve regulatory targets. Now targeted cuts to required reserve ratios, plus the previous refinancing and rediscounting of more than one trillion yuan, can make small and medium-sized banks have enough cheap debts, give them more chips to serve small and micro enterprises and other inclusive customers, and better compete with big banks.
However, Li Qilin further expressed his concern about the risk of lending. He believed that for some small banks in areas with underdeveloped economy and few customers of high-quality small and micro enterprises, they may not be willing to expand their risk exposure and lend to high-risk enterprises even if they have more cheap debts. However, the RRR cut has at least diluted the debt cost of these banks, protected their interest margins and profits, and made them better cope with the risks brought by the deterioration of asset quality in the depressed economic environment.
Reduce the excess reserve interest rate after 12 years.
What is the excess reserve interest rate? The central bank explained that the excess reserve is the money that deposit-taking financial institutions voluntarily deposit in the central bank after paying the statutory reserve, which is at the discretion of banks and can be used for liquidation and cash withdrawal at any time. The People’s Bank of China pays interest on the excess reserve, and its interest rate is the excess reserve interest rate.
In fact, the last time the interest rate of excess reserve was lowered was back to 2008, when the interest rate was lowered from 0.99% to 0.72%, and it has not been adjusted since then. The central bank said that lowering the interest rate of excess reserve from 0.72% to 0.35% this time can promote banks to improve the efficiency of capital use and promote banks to better serve the real economy, especially small and medium-sized enterprises.
"This tool is mainly to force commercial banks to increase credit supply. The excess reserve interest rate is the rate of return that banks get by putting their deposits in the central bank. Now the decline of this interest rate actually encourages banks not to put all their money in the central bank, but to lend their money out to support the real economy. The European Central Bank’s excess reserve interest rate is negative, which means that banks have to charge for putting money in the central bank. In fact, it is also to force banks to lend. " Ming Ming, deputy director of CITIC Securities Research Institute, analyzed the Sino-Singapore Jingwei client.
Wang Qing, chief macro analyst of Oriental Jincheng, explained that it is generally believed that the excess deposit reserve interest rate (also known as "excess deposit interest rate") is the lower limit of the interest rate corridor in China. Considering that the 7-day reverse repurchase interest rate and MLF interest rate in the previous policy interest rate system have been adjusted 2-3 times, the reduction of the over-reserve interest rate reflects the linkage of the policy interest rate system to a certain extent, which is helpful to maintain the orderly operation of the interest rate corridor.
Wang Qing also believes that the central bank’s sharp reduction of the interest rate on excess reserves is actually urging commercial banks to increase their lending to enterprises, and not to hoard the liquidity released by the central bank in their own hands or deposit it in the money market. Recently, the average value of DR007 has been significantly lower than the central bank’s 7-day reverse repo rate. This means that under the current situation, the central bank hopes to see the growth rate of RMB credit further accelerated, especially in terms of the growth rate of credit supply to small and medium-sized enterprises. It is expected that the growth rate of RMB loans in financial data in the coming months is expected to accelerate.
Financial yield may be lower.
Will the reduction of interest rates on targeted cuts to required reserve ratios and excess deposit reserve affect the bank’s financial yield?
"As the investment yield of the entire banking system declines, in the long run, the financial yield will drop significantly." Clearly stated.
Yin Yanmin, an analyst at Rong 360 Big Data Research Institute, analyzed the client of Zhongxin Jingwei, saying that monetary policy continues to be loose and funds are continuously released to the market. For fixed-income investment products, the overall income level will further decline, and the income of bank wealth management products and money funds will continue to decline in the future, and low-risk fixed-income products with high yield will become less and less.
She suggested that investors with low risk tolerance should try to choose medium and long-term wealth management products if their liquidity requirements are low, and lock in a relatively high rate of return in advance.
Limited impact on the stock market and property market.
According to wind statistics, since November 2011, the central bank has lowered the RRR for 20 times (including targeted cuts to required reserve ratios). According to the announcement of the stock market’s ups and downs the next day, the Shanghai Composite Index has fallen for 9 times and rose for 11 times, which has different impacts on the A-share market.
Yang Delong, chief economist of Qianhai Open Source Fund, told Zhongxin Jingwei that the valuation of the A-share market is now at the bottom of history, and the P/E ratio of SSE 50 is only 9 times, which is in a state of falling, so there is no condition for a sharp decline in the market.
He believes that if the A-share market really wants to strengthen, it needs to wait until the overseas epidemic turns to an inflection point, and the number of confirmed cases in the United States and Japan tends to decline, then it will really usher in a chance of a sharp rebound. In the short term, the market is more structural. It is suggested that investors can look for opportunities from the three major directions of consumption, brokerage and technology, especially some consumer industries that were greatly affected by the epidemic in the first quarter, and now they are gradually recovering, and white horse stocks are also welcoming a new round of opportunities. It is suggested that investors can actively lay out.
In addition, many people are concerned about whether the RRR cut will have an impact on the property market. In this regard, Zhang Dawei, chief analyst of Zhongyuan Real Estate, pointed out that the RRR cut is not for real estate, but to reduce the financing cost of enterprises. The Central Economic Work Conference also proposed that a prudent monetary policy should be flexible and moderate, maintain a reasonable and sufficient liquidity, and increase the scale of monetary credit and social financing in line with economic development to reduce the cost of social financing. Under the clear requirements of "housing and not speculating" and "not using real estate as a short-term means to stimulate the economy", the funds released by the RRR cut are strictly controlled to enter the real estate field.
Zhang Dawei believes that although the RRR cut for small and medium-sized banks has little direct impact on real estate, historically, as long as it is lowered, it will be good for real estate, which can alleviate the financial pressure of real estate enterprises, and in addition, it can also obtain relatively stable credit prices for home buyers’ mortgages.
MLF interest rate and LPR quotation are expected to go down in April.
So how will monetary policy go in the future? Many industry experts believe that China is at the critical stage of resuming work and production, and steady growth will surely become the core task of economic development throughout the year. In the future, the monetary policy should be adjusted against the cycle, the transmission channels of monetary policy should be dredged, and the actual financing cost of enterprises should be gradually reduced.
Dong Ximiao, a special researcher at the National Finance and Development Laboratory, told the client of Zhongxin Jingwei that in the early stage, the banking industry generally reduced profits and fees for the prevention and control of epidemic situation and the resumption of production. In the case that the profit growth of banks is affected, the benchmark deposit interest rate can be lowered in a timely and appropriate manner to further reduce the debt cost of banks and enhance the initiative and sustainability of banks’ service improvement. For small and medium-sized banks, it is more important to help broaden debt channels, enrich debt sources and allow more flexible interest rate floating space.
At the same time, we should further reform and improve the LPR related mechanism and deepen the market-oriented reform of loan interest rates. At present, we should step up the conversion of the pricing benchmark of existing floating interest rate loans, unblock the transmission channels of monetary policy by means of reform, and promote the gradual decline of the actual financing costs of enterprises.
Wen Bin believes that in the next stage, it is still necessary to continue to increase countercyclical adjustment and reduce the cost of social financing, which is the core work of monetary policy. It is expected that the central bank will lower the MLF interest rate and guide the LPR to go down before the LPR is announced in April. In addition, the upcoming 1 trillion yuan refinancing rediscount, 300 billion yuan micro-financial bonds, and 1 trillion yuan more corporate credit bonds than the previous year will all help broaden the low-cost financing channels for small and medium-sized enterprises.
Wang Qing pointed out that MLF interest rate and LPR quotation are expected to resume downward trend in April, and the counter-cyclical adjustment of monetary policy will be significantly strengthened. Considering that the central bank’s 7-day reverse repo rate has been lowered by 20 basis points on March 30, it is expected that the bidding rate for routine MLF operations will also be lowered by the same amount this month. This will drive the one-year LPR quotation to resume its downward trend on April 20, and it is estimated that the downward trend will also be 20 basis points, and the five-year LPR quotation may also decline by 10 basis points.
He analyzed that the lower LPR quotation will drive the bank loan interest rate to drop even more, and from the perspective of the bank’s capital source, the lower money market interest rate can’t make up for the bank’s loss in net interest margin. Considering the macro-economic factors such as cost reduction, inflation control and risk prevention, the benchmark deposit interest rate may have a small downward adjustment space of about 0.25 percentage points, and it is more likely to be implemented after the CPI drops significantly year-on-year in the second half of the year. This means that in the coming period, in order to effectively reduce the financing costs of enterprises, banks will make moderate profits to the real economy. (Zhongxin Jingwei APP)