The national standing committee requires that "large banks with high provision level are encouraged to reduce the provision coverage in an orderly manner". In the previous report "social finance trends and preferences of financial institutions" (20220413), we proposed that the current slow growth of credit financing, especially the slow growth of medium and long-term credit of enterprises, is related to the weak risk preference of financial institutions. Therefore, the national Standing Committee encourages qualified large banks to reduce the provision coverage in an orderly manner, which is precisely to encourage large banks to be more active in credit extension.
The RRR reduction mentioned in this national regular meeting reflects that the decision-making level judges that the outflow of foreign capital and exchange rate pressure are relatively controllable and adheres to the "self focus" of monetary policy. At present, China's trade surplus is still large. In the first three months of this year, the cumulative foreign trade surplus reached US $162.94 billion, an increase of nearly 50% year-on-year. It is expected that the scale is enough to hedge and exceed the capital outflow in the bond market. So as to ensure that the narrowing of China US interest rate spread will not have a serious impact on the exchange rate. At the same time, the liquidity provided by the RRR reduction for the bond market is also conducive to hedging the pressure of foreign capital reduction.
The possible RRR reduction in the next stage is either directional or with directional requirements. In our previous report, we proposed that from the perspective of the recent growth rate of enterprise financing, the upward trend of the growth rate of enterprise credit bonds, enterprise short-term loans and bill financing is relatively consistent, while the growth rate of enterprise medium and long-term loans is in a downward trend. This confirms that financial institutions are more cautious about providing medium and long-term loans to small, medium and micro enterprises. Therefore, the RRR reduction that may be introduced in the next stage may have certain directional requirements, so as to guide financial institutions to increase medium - and long-term credit support for small, medium-sized and micro enterprises.
Risk tip: the real economy outside China has changed beyond expectations, inflation has risen too fast, and policies have been tightened beyond expectations.
