The year-on-year growth rate of M2 in February was worse than expected. In February 2022, the year-on-year growth rate of 9.2% M2 was worse than expected, with a month on month decline of 0.6 percentage points. The year-on-year growth rate of M1 increased by 6.6 percentage points to 4.7% month on month. The scissors difference between M2 and M1 narrowed by 7.2 percentage points to 4.5% month on month. Generally speaking, we believe that the year-on-year growth rate of M2 decreased month on month, reflecting that the monetary policy of the people's Bank of China is still stable, flexible and appropriate, and China's liquidity environment is reasonable and abundant. In 2022, we expect that the year-on-year growth rate of M2 will basically match the growth rate of nominal China's GDP.
New RMB loans were worse than expected. The year-on-year decline of 31.0% of new social financing in February 2022 is mainly due to the year-on-year decline of new RMB loans, new undiscounted bank acceptances and new stock financing. RMB loans are still the main channel for the government to support the financing of the real economy. New RMB loans in February were worse than expected. New RMB loans fell 9.6% year-on-year and 69.1% month on month. New medium and long-term RMB loans decreased by 69.6% year-on-year and 83.8% month on month. Among them, medium and long-term RMB loans of new non-financial enterprises decreased by 54.1% year-on-year and 75.9% month on month, while personal medium and long-term RMB loans decreased year-on-year. We believe that the sharp year-on-year decline in new medium and long-term RMB loans partly shows that China's economic recovery is still relatively weak. In February 2022, new RMB loans to the real economy accounted for 76.3% of new social financing.
Our view on Liquidity: in February 2022, the people's Bank of China launched a standing loan facility of RMB 2.7 billion and a medium-term loan facility of RMB 300 billion. On January 20, 2022, the people's Bank of China announced to reduce one-year lpr10 basis points to 3.70% and five-year LPR5 basis points to 4.60%. CPI in February 2022 was 0.9%. In the report on the implementation of China's monetary policy in the fourth quarter of 2021, the central bank stressed the main directions of monetary policy: 1) a prudent monetary policy should be flexible and appropriate, strengthen cross cycle regulation, and give full play to the dual functions of the total amount and structure of monetary policy tools; 2) We will maintain steady growth in the total amount of money and credit, maintain reasonable and sufficient liquidity, guide financial institutions to vigorously expand loan lending, keep the growth rate of money supply and social financing basically match that of the economy, and maintain the basic stability of macro leverage ratio; 3) We will steadily optimize the credit structure, implement market-oriented policy tools to support small and micro enterprises, make good use of carbon emission reduction support tools and special refinancing to support the clean and efficient use of coal, guide financial institutions to increase credit in areas with slow credit growth, and accurately increase support for key areas and weak links such as small and micro enterprises, scientific and technological innovation and green development; 4) Promote the reduction of comprehensive financing costs of enterprises and guide the decline of enterprise loan interest rates; 5) Keep the RMB exchange rate basically stable at a reasonable and balanced level; 6) We will coordinate the prevention and resolution of major financial risks. The 2022 government work report pointed out that: 1) prudent monetary policy should be flexible and appropriate, and maintain reasonable and abundant liquidity; 2) Expand the scale of new loans, keep the growth rate of money supply and social financing basically match the nominal economic growth, and keep the macro leverage basically stable. Globally, although the popularity of covid-19 vaccine continues to expand and specific drugs begin to be promoted, the variant strain has added uncertainty to the covid-19 epidemic. The global inflationary pressure continues, the US exit volume is wide and the expectation of raising interest rates is rising, and the conflict between Ukraine and Russia is escalating. China's economy is facing the pressure of shrinking demand, supply shock and weakening expectations. In addition, the covid-19 epidemic, the increasing uncertainty of the external environment and the confrontation between China and the United States will also bring downward pressure on China's economy. In order to stabilize economic growth, reduce the negative impact of covid-19 epidemic, control economic risks and support the financing of small, medium-sized and micro enterprises and private enterprises, we expect that the monetary policy of the people's Bank of China will be stable, flexible and appropriate in 2022, and China's liquidity environment will be relatively stable.
Industry perspective: in 2022, we expect that the net profit of Bank Of China Limited(601988) industry will still maintain a relatively good growth, while the asset quality of Bank Of China Limited(601988) industry will remain relatively stable and improved; We maintain the investment rating of "outperforming the market" in the banking industry. Our preferred stock is China Merchants Bank Co.Ltd(600036) (03968 HK). Our investment rating and target price of the company are "buy" and HK $81.56 respectively.
