Core conclusion
The estimated excess reserve rate at the end of November remained stable, and the inter-bank certificate of deposit issuance interest rate and treasury bond interest rate tended to decline. At the end of November, M2 growth rate decreased by 0.2 percentage points month on month to 8.5%. The lack of year-on-year increase in credit was the main drag factor, reflecting that the demand for entity financing was still weak. At the end of the month, the growth rate of social finance increased by 0.1 percentage point month on month to 10.1%, mainly supported by government bonds.
In December, the Politburo meeting and the central economic work conference were held, placing steady growth in a more prominent position. The central bank cut the reserve requirement by 0.5 percentage points, lowered the one-year LPR by 5bps, kept the five-year LPR unchanged, and the monetary policy was stable and loose. However, in December, the interbank certificate of deposit issuance interest rate and treasury bond interest rate showed a continuous upward trend. We believe that the core of the central bank’s stable and loose monetary policy is to stabilize growth. The central bank did not reduce the MLF interest rate and still maintained the interbank liquidity at a reasonable and sufficient level. Under the power of steady growth policy, the market’s economic expectations have warmed up. The estimated M2 growth rate at the end of December was 8.5%, unchanged, and the social finance growth rate was 10.3%, up 0.2 percentage points month on month, mainly supported by government bonds, and the credit demand of the real economy still did not improve significantly.
Review in November: the demand for physical financing is weak, and the government bonds support social finance. Summary: the estimated excess reserve rate at the end of November was 0.95%, a slight increase of 2bps compared with that at the end of October. The fiscal expenditure invested a large amount of base currency, and the central Bank recovered funds to maintain reasonable and abundant inter-bank liquidity. R007 / dr007 basically operated around the policy interest rate, and the interest rate level increased in the latter ten days. However, the inter-bank certificate of deposit issuance interest rate and treasury bond interest rate trend downward. At the end of November, the growth rate of M2 was 8.5%, down 0.2 percentage points from the previous month. The less year-on-year increase in credit was the main drag factor, reflecting that the demand for entity financing was still weak. At the end of November, the growth rate of social finance was 10.1%, up 0.1 percentage points month on month, mainly supported by government bonds.
Base currency: excess reserve rate remains stable
In November, the central bank operated to withdraw 314.5 billion yuan of base currency, fiscal expenditure and other financial factors invested 427.3 billion yuan of base currency, and the increased demand for cash withdrawal made 129.4 billion yuan of base currency flow out of the bank. We calculated that the over storage rate at the end of November was 0.95%, up 2bps month on month, basically flat. Considering that the over storage rate is the number of points at the end of the month, which will be impacted by some seasonal factors and can not fully represent the liquidity of the inter-bank market in the whole month. In addition to the amount of liquidity, the more important thing is the price.
In November, the central reverse repurchase fund recovered 500 billion yuan; MLF continues with an equal amount of 1 trillion yuan; The fixed deposit of state treasury cash was 70 billion yuan due, and there was no renewal. The one-year MLF interest rate was maintained at 2.95%; The 1-year LPR maintained 3.85%, and the 5-year LPR maintained 4.65%.
In November, the base currency increased by 284.8 billion yuan, including 186.6 billion yuan in deposits from other deposit companies, 129.4 billion yuan in currency issuance and 31.2 billion yuan in deposits from non-financial institutions. The excess reserve ratio is the core indicator reflecting the inter-bank capital situation, that is, “excess deposit reserve / deposit based on payment standard”. The calculation formula of excess deposit reserve is as follows (generally calculate its change value in a certain period):
Δ Excess deposit reserve= Δ Foreign exchange occupation+ Δ Creditor’s rights to other deposit companies- Δ Government deposits- Δ Statutory deposit reserve- Δ Currency issue- Δ We estimate that the excess reserve rate of non gold deposits of the central bank at the end of November was 0.95%, an increase of 2 BPS compared with that at the end of October. A large number of base currencies were invested in fiscal expenditure. In order to maintain a reasonable and abundant inter-bank liquidity, the central bank withdrew funds.
Broad money: M2 grew by 8.5%, down 0.2pct month on month
At the end of November, the year-on-year growth rate of M2 was 8.5%, down 0.2 percentage points from the previous month. Among them, the less year-on-year growth of credit was the core factor that dragged down the decline of M2 growth rate. In addition, the impact of non-bank and non-standard compression on M2 growth expanded slightly, but the contribution of fiscal expenditure to M2 growth increased. M2 derivatives mainly include: (1) banks absorb foreign exchange and invest RMB; (2) Banks extend loans to non-financial enterprises and residents; (3) Banks purchase bonds from non-financial enterprises; (4) Financial investment; (5) The bank purchases asset management products on its own, and the transparency of these assets is low. When forecasting, we combine them into “other” projects. According to the old statistics without goods base, M2 increased by 2.03 trillion yuan in November. Broken down from the source, the M2 derived from the loan to the entity (plus write back and ABS) is about 143 million yuan; Fiscal expenditure and other fiscal factors invested about 1.02 trillion yuan in m2; M2 of corporate bonds purchased by banks on their own account was about 302 billion yuan at maturity; The bank’s self operated funds invested in non-bank and non-standard factors, and the return of M2 is about 157.5 billion yuan (this account is mainly the netting item, and there may be errors between this item and the actual value); M2 of foreign exchange is about 35.4 billion yuan.
Capital interest rate: the interest rate has declined
R007 / dr007 basically operated around the policy interest rate, the interest rate level increased in the last ten days, and the inter-bank certificate of deposit issuance interest rate and treasury bond interest rate tended to decline. From the monthly average, the average values of Shibor (overnight) and Shibor (one month) in November were 1.95% and 2.37% respectively, which remained stable month on month. The average values of R007 and dr007 in November were 2.19% and 2.16% respectively, which increased by 8.0bps and decreased by 1.0bps compared with the average value in October The average yield to maturity (AAA +, one year) of interbank certificates of deposit in November was 2.74%, down 0.5bps from the average in October The average interest rates of one-year treasury bonds and ten-year Treasury bonds in November were 2.27% and 2.90% respectively, 7.3bps and 7.7bps lower than the average in October.
Outlook for December: the growth rate of social finance is expected to increase to 10.3%
Conclusion: the Politburo meeting and the central economic work conference were held, which put steady growth in a more prominent position. The central bank decided to comprehensively reduce the reserve requirement by 0.5 percentage points on December 15, 2021, reduce the one-year LPR by 5bps on December 20, and keep the five-year LPR unchanged. However, in December, the interbank certificate of deposit issuance interest rate and treasury bond interest rate showed a continuous upward trend. We believe that the core of the central bank’s stable and loose monetary policy is to stabilize growth. The central bank did not reduce the MLF interest rate and still maintained the interbank liquidity at a reasonable and sufficient level. Under the power of steady growth policy, the market’s economic expectations have warmed up. The estimated M2 growth rate at the end of December was 8.5%, which remained unchanged, and the social finance growth rate was 10.3%, an increase of 0.2 percentage points month on month, mainly supported by the high year-on-year increase in government bond issuance, and the credit demand of the real economy still did not improve significantly.
In December, the reserve requirement was fully reduced, and the one-year LPR was reduced by 5bps
We calculated that the over storage rate at the end of December was 1.33%, an increase of about 38bps month on month. The central bank decided to reduce the deposit reserve ratio of financial institutions by 0.5 percentage points on December 15, 2021, releasing a total of about 1.2 trillion yuan of long-term funds. On December 15, MLF contracted and continued, with a return of 450 billion yuan. After considering the impact of MLF, about 750 billion yuan was released. In addition, it is estimated that the fiscal expenditure in December will invest about 938.7 billion yuan in the base currency. In order to maintain a reasonable and sufficient liquidity, the central bank will operate and withdraw 350 billion yuan of funds (excluding 450 billion yuan of MLF funds), and the increased demand for cash withdrawal during the double day festival will make 306.1 billion yuan of base currency flow out of the bank. According to this calculation, the over storage rate at the end of December was 1.33%.
The central economic work conference put steady growth in a more prominent position. In addition to the overall RRR reduction, the one-year MLF interest rate remained at 2.95%; The 1-year LPR decreased by 5bps to 3.80%, and the 5-year LPR maintained at 4.65%. However, the interbank deposit certificate issuance interest rate and treasury bond interest rate shown in Figure 5 and Figure 6 showed a continuous upward trend after the reduction of reserve requirement and LPR throughout the year. We believe that the loose monetary policy of the central bank is mainly for stable growth. The central bank did not reduce the MLF interest rate and still maintained the interbank liquidity at a reasonable and sufficient level. Under the force of the stable growth policy, the market has warmed up its economic expectations.
At the end of December, the growth rate of M2 is expected to be 8.5%, and that of social finance is expected to be 10.3%
We predict mainly based on the M2 derivative approach. We expect that in December 2021, M2 (excluding the goods base) will increase by about 2.15 trillion yuan, and the annual increase will be 19.16 trillion yuan. The corresponding M2 growth rate is (assuming that the goods base remains unchanged) 8.5%, unchanged from the previous month. Among them, the assumptions and forecasts of derivation of each channel are as follows:
In recent years, there has been little change in foreign exchange. We simply assume that the change in foreign exchange is the average of the same period in the past three years, that is, a decrease of 12.9 billion yuan.
M2 derived from real economy credit (plus write off and ABS) was about 1.41 trillion yuan, a year-on-year decrease of 190.3 billion yuan. Corresponding to the new physical credit of 21.3 trillion yuan in 2021, an increase of 175.2 billion yuan less than last year, mainly due to the decrease of 293.3 billion yuan in the total amount of write off and ABS compared with last year.
The maturity and withdrawal of M2 of corporate bonds purchased by banks on their own account is about 682.1 billion yuan (average value for the same period in 2018-2020).
Fiscal expenditure and other factors derive about 2.12 trillion yuan. Financial factors are difficult to predict. We mainly use the average value of the same period in the three years from 2018 to 2020.
Non standard and non-bank loans and other factors have derived about 680 billion yuan of M2. The transparency of this part is very low. It is also a netting term in our M2 derived channel model, and the prediction accuracy is relatively low. We calculate it according to the average adjustment of the same period in the past three years.
We predict that social finance will increase by 2.17 trillion yuan in December, corresponding to a year-on-year growth rate of 10.3% at the end of the month, an increase of 0.2 percentage points over the end of last month. Specifically, it is estimated that RMB loans (plus write off and ABS) will be 1.41 trillion yuan, entrusted loans and trust loans will be reduced by 800 billion yuan, undiscounted bank acceptance bills will be reduced by 80 billion yuan, corporate bonds will be increased by 185.8 billion yuan, stock financing will be increased by 100 billion yuan, and government bonds will be increased by 1.25 trillion yuan.
According to the forecast, in 2021, about 31.16 trillion yuan of social finance will be added, including 20.15 trillion yuan of RMB loans, 1.14 trillion yuan of write off and ABS, 2.48 trillion yuan of entrusted loans and trust loans, 429.8 billion yuan of undiscounted bank acceptances, 3.25 trillion yuan of corporate bonds and 1.13 trillion yuan of stock financing, Government bonds increased by 7.1 trillion yuan.
The core logic of the prediction of social finance and M2 in 2022 is steady growth. We expect that the annual new social finance will be about 34 trillion yuan, corresponding to a year-on-year growth rate of 10.8%.
Investment advice
Steady growth has become the core logic of M2 and social finance prediction. Credit has entered a moderate stage of improvement, and market expectations for the economy will continue to improve. The core logic of investment in the banking sector is macroeconomic. The valuation of the banking sector will be repaired with the improvement of macroeconomic expectations to maintain the “over allocation” rating of the industry. However, high-quality economic development is the long-term direction, and the structural wide credit pattern continues. The selection of individual stocks is very key. We recommend individual stocks from two perspectives: one is to continuously recommend high-quality Bank Of Ningbo Co.Ltd(002142) and China Merchants Bank Co.Ltd(600036) in the medium and long term; the other is to pay attention to small and medium-sized banks deeply engaged in the local real economy. It is suggested to focus on Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) , Jiangsu Suzhou Rural Commercial Bank Co.Ltd(603323) , Jiangsu Zhangjiagang Rural Commercial Bank Co.Ltd(002839) and Wuxi Rural Commercial Bank Co.Ltd(600908) in regions with developed regional economy, as well as Bank Of Chengdu Co.Ltd(601838) benefiting from the development of Chengdu Chongqing economic circle.
Risk statement
If the macroeconomic recovery is less than expected, it may affect the banking industry from many aspects, such as the negative impact of loose monetary policy on the net interest margin during the economic downturn, the impact of the unexpected decline in corporate solvency on the quality of bank assets, etc.
（ Guosen Securities Co.Ltd(002736) ）
