The State Council executive meeting held on June 17 deployed and guided financial institutions to further reasonably provide profits to enterprises to help stabilize the economic fundamentals; it also called for accelerating the implementation of fee reduction policies to take effect and reduce the burden on market entities.
The meeting pointed out that the next step should be based on the requirements of the government work report. First, seize the key to reasonable profit sharing, protect market entities, and stabilize the fundamentals of the economy. Further, through a series of policies such as guiding loan interest rates and bond interest rates downward, issuing loans with preferential interest rates, implementing deferred principal and interest payments on loans to small, medium and micro enterprises, supporting the issuance of unsecured credit loans to small and micro enterprises, and reducing bank charges, we will promote the financial system to move forward throughout the year. All kinds of enterprises will reasonably share profits of 1.5 trillion yuan. The second is to comprehensively use tools such as reserve requirement ratio reductions and re-loans to maintain reasonable and sufficient market liquidity, intensify efforts to solve financing difficulties, and ease corporate capital pressures. The scale of new RMB loans and social financing throughout the year exceeded that of the previous year. The third is to follow market rules and improve policy tools and related mechanisms for funds to flow directly to enterprises. In accordance with the requirements of retention and control, ensure that new financial funds mainly flow to the manufacturing and general service industries, especially small, medium and micro enterprises, so as to better exert the effect of emergency relief and "helping in times of need", prevent funds from straying and "idling", and guard against financial risks. The fourth is to enhance the ability and motivation of financial services to small, medium and micro enterprises. Reasonably replenish the capital of small and medium-sized banks. Banks are urged to improve their internal assessment and incentive mechanisms and increase the weight of inclusive finance in assessments. Increase efforts to write off and dispose of non-performing loans. It is strictly prohibited to attach unreasonable conditions when granting loans. Effectively achieve a significant reduction in the actual financing costs of market entities and further reduce the difficulty of lending.
The reporter learned from the interview that the downward guidance of loans means that LPR will further decline. The reduction of LPR will be achieved by reducing the bank's liability side costs, and its measures include lowering MLF interest rates, lowering reserve requirements and even lowering benchmark deposit interest rates.
Wu Chaoming, chief economist of Caixin Securities, said that the possibility of the central bank significantly lowering policy interest rates in the future is declining. LPR is equal to the policy interest rate plus the spread, and the spread includes factors such as profits, bank charges, etc. This meeting proposed "seizing the key to reasonable profit sharing", which means that financial institutions are the big winner in reducing spreads, and lowering the policy interest rate is not the main option.
The current National Standing Committee clearly stated: "Comprehensive use of tools such as reserve requirement ratio cuts and re-lending to maintain reasonable and sufficient market liquidity." In the context of the large-scale issuance of government bonds such as special treasury bonds, the market expects that in the short term The probability of internal RRR reduction increases.
“The scale of credit and social financing has increased significantly in the first five months of this year, indicating that the problem of financing difficulties is easing. This time the policy focuses on expensive financing. With the implementation of the policy, enterprises will General loan interest rates will fall further," said Wang Qing, chief macro analyst at Oriental Jincheng.
In an interview in late May, Yi Gang, governor of the Central Bank, said that the LPR reform has effectively promoted the reduction of real interest rates on loans. The average corporate loan interest rate in April was 4.81%, a decrease of 0.51 percentage points from July 2019 before the LPR reform, and is expected to continue to decline in May.
Reasonable profits to enterprises
Wind data shows that in the first quarter of 2020, the total profits of my country's industrial enterprises fell sharply by 36.7% year-on-year, but commercial banks achieved a net profit of 600.1 billion yuan in the first quarter. A year-on-year increase of 5.0% has aroused market attention on banks' high profits.
The article "An Objective Look at the Profit Growth of the Banking Industry in the First Quarter" published by the Research Bureau of the People's Bank of China in May stated that the growth of bank profits in the first quarter was mainly due to the expansion of the banking industry's asset scale and the management cost-to-income ratio. Decline. For example, in the first quarter of this year, the cost-to-income ratio of commercial banks was 25.69%, down 1 percentage point from the same period last year and about 2 percentage points lower than the average level for the same period since 2011.
The research team also pointed out that when the real economy is facing greater difficulties and the absolute amount of bank profits is large, there is some room for banks to make profits to the real economy. Banks should give full play to their advantages of greater profits, increase support for the real economy, especially small and micro enterprises, reduce corporate financing costs, and smooth the virtuous economic and financial cycle.
This State Council pointed out that from January to May this year, through measures such as lowering reserve requirements, re-loans and re-discounts, and guiding market interest rates downward, RMB loans increased year-on-year and the comprehensive financing costs of enterprises decreased. The next step is to follow the requirements of the government work report, seize the key to reasonable profit sharing, protect market entities, and stabilize the fundamentals of the economy.
Specifically, it is necessary to further guide the loan interest rate and bond interest rate to decline, issue loans with preferential interest rates, implement deferred principal and interest payments on loans to small and micro enterprises, support the issuance of unsecured credit loans to small and micro enterprises, and reduce the number of bank loans. A series of policies such as charging fees have promoted the financial system to reasonably provide 1.5 trillion yuan in profits to various enterprises throughout the year.
“This is essentially a cost-sharing mechanism to deal with the impact of the epidemic, that is, financial institutions provide benefits to enterprises and work with them to tide over difficulties to stabilize the basic economic system. Financial institutions can not only reduce future slack The loss of bad debts can also provide opportunities for later profits, thereby achieving the goal of a successful life, "Wu Chaoming said.
Among the aforementioned “package” measures, lowering loan interest rates is at the forefront. In August 2019, the central bank promoted the market-oriented reform of loan interest rates. After the reform, the LPR refers to the MLF, and the loan interest rate is anchored to the LPR. In other words, to guide loan interest rates downward, LPR will most likely need to be lowered.
Data from the central bank show that on May 20, the 1-year LPR was 3.85%, and the 5-year and above LPR was 4.65%, which were 30BP and 15BP respectively lower than the end of last year. The interest rate of MLF operated on June 15 was the same as that of the previous period, but under the requirement of "reasonable profit sharing" at this National Congress, the LPR quotation on June 20 may also be lowered.
“Although the MLF interest rate remains unchanged in June, commercial banks may lower the quotation markup, and the probability of a slight downward trend in the LPR quotation on June 20 is increasing.” Wang Qing said.
In the medium and long term, it is necessary to guide the downward trend of LPR and improve the commercial sustainability of low-interest loans issued by banks. In addition to lowering the MLF interest rate, it is necessary to reduce the required reserve ratio, control deposit competition, and reduce the scale of structural deposits. Measures to reduce bank liability costs are also important. In addition, it is also possible to reduce the benchmark deposit interest rate.
CITIC Securities Chief Fixed Income Analyst Ming Ming said that the hedging policies of the financial system are more reflected in the reduction of loan interest rates and increases in loan quotas led by commercial banks, which will ultimately reduce the comprehensive loan costs of enterprises. The reason that limits the decline of LPR and loan interest rates is the rigidity of bank liability costs. Therefore, the deposit benchmark interest rate is one of the ways to affect the decline of loan interest rates.
The probability of RRR cuts has increased
This State Council meeting also pointed out that tools such as RRR cuts and re-lending should be comprehensively used to maintain reasonable and sufficient market liquidity, increase efforts to solve financing difficulties, and alleviate Corporate financial pressure. This is the second time the National Standing Committee has mentioned lowering the reserve requirement ratio. Some market participants believe that in most cases, after the National Standing Committee mentions an RRR cut, measures to reduce the RRR will be introduced within two weeks. In addition, the large-scale issuance of government bonds such as anti-epidemic special treasury bonds also requires a reduction in the required reserve ratio to provide liquidity support.
For example, the National Congress held on March 10 (Tuesday) this year requested that we promptly introduce targeted reserve requirement ratio reduction measures for inclusive finance, and additionally increase the intensity of reductions in required reserve ratios for joint-stock banks, so as to promote commercial banks to increase their Loan support for small and micro enterprises and individual industrial and commercial households. On March 13 (Friday), the central bank announced relevant RRR reduction measures.
“In the past one or two years, reserve requirement ratio cuts and other measures have been first announced by the Standing Committee of the State Council and then implemented within two weeks, which is the so-called 'two-week' rule. It is estimated that this time there will be no big impact. Changes." said Zhang Jiqiang, chief analyst of Huatai Gushu.
Data from the central bank show that at the end of May 2020, the average statutory deposit reserve ratio of financial institutions was 9.4%, which was 5.5 percentage points lower than at the beginning of 2018. Among them, the deposit reserve ratios of large banks and medium-sized banks are 11% and 9% respectively. The deposit reserve ratio of more than 4,000 small and medium-sized banks has dropped to 6%, which is at a low level.
Xu Nuojin, president of the Zhengzhou Central Branch of the Central Bank, told reporters that judging from my country's current situation, there is room for lowering the deposit reserve ratio. From an international perspective, my country's deposit reserve ratio is at a medium level. From a structural point of view, the difference between the deposit reserve ratios of different financial institutions is still relatively large, and the deposit reserve ratios of large state-owned banks can be further reduced.
This State Council meeting also proposed two measures: improving policy tools and related mechanisms for direct funds to enterprises, and rationally supplementing the capital of small and medium-sized banks. The former refers to two tools: the Inclusive Small and Micro Enterprise Loan Extension Support Tool and the Inclusive Small and Micro Enterprise Credit Loan Support Plan. The meeting called for ensuring that new financial funds flow mainly to the manufacturing and general service industries, especially small, medium and micro enterprises, to prevent funds from being diverted and "idling", and to guard against financial risks.
In terms of capital replenishment, the Office of the Financial Commission announced on May 27 that it will issue a "Work Plan for Deepening Reform and Replenishing Capital for Small and Medium-sized Banks" to further promote the deepening of reforms and accelerate the replenishment of capital for small and medium-sized banks. The reporter learned that the regulatory authorities plan to allocate 200 billion from this year’s special debt quota to inject capital into small and medium-sized banks, but the specific plan has not yet been determined.
The State Council executive meeting also pointed out that since this year, relevant departments and units have introduced a series of measures such as waiving tolls on national toll roads, reducing electricity prices for industrial and commercial enterprises, reducing telecommunications tariffs, and reducing or exempting related government fund charges. Fee reduction measures have played a positive role in relieving enterprises. In the next step, we must closely focus on ensuring employment and people's livelihood and market entities. First, the fee reduction measures that have been decided must be done and implemented in place. By reducing industrial and commercial electricity prices by 5%, exempting airline civil aviation development funds and import and export cargo port construction fees, and halving the collection of ship oil pollution damage compensation funds until the end of the year, and reducing the average broadband and dedicated line tariffs by 15%, together with the reduction in the first half of the year Expenditure measures have reduced the burden on enterprises by more than 310 billion yuan throughout the year. The second is to resolutely stop illegal charges. It is strictly prohibited to collect "excessive taxes and fees", illegally collect taxes and fees, and increase unreasonable burdens on market entities in the name of clearing and repaying taxes. For fee fund projects that have been cancelled, suspended, exempted or reduced, we must resolutely implement them to enterprises. The third is to deepen the reform of “delegating power, delegating power, delegating power, delegating regulation and optimizing services” and creating a market-oriented, legal-based and international business environment. On the basis of carrying out special management of fees in key areas such as import and export links, corporate financing, public utilities, logistics, and administrative approval-related intermediary services, we will improve the system and mechanism and eradicate the soil of arbitrary fees from the system.