The “consensus” of this RRR reduction is not strong, which belongs to a relatively restrained operation. (1) The landing time of RRR reduction is April 25, and the payment time of RRR in April is may, 15 and 25. At present, the liquidity environment is relatively loose, and the central bank does not need to “rush” to complete the RRR reduction on the day of official announcement on April 15. (2) “At present, the liquidity is at a reasonable and sufficient level”, and the consensus on reducing the reserve requirement is not high. If the general reduction of 0.5 percentage points is suspected of “flood irrigation”, it is easy to cause large fluctuations in the capital interest rate. This RRR reduction of 0.25 percentage points has created a “new precision” in the deep delivery of basic currency, and the subsequent RRR reduction operation does not rule out the continued use of this “small step and slow walk” arrangement. (3) This RRR reduction released 530 billion funds, of which 450 billion is expected to be released from the general RRR reduction, and about 80 billion will be released from the additional targeted RRR reduction. About 1 / 6 of the banks enjoy the targeted RRR reduction. (4) After the RRR reduction, the central bank’s priorities are: inflation, internal and external balance and economic operation. The international conflict between Russia and Ukraine and China’s epidemic prevention situation have put great pressure on “stabilizing prices”, and we need to focus on dredging the supply side. If we forcibly stimulate aggregate demand through “flood irrigation”, it will further aggravate inflationary pressure and increase the operation cost of monetary policy. Therefore, the RRR reduction proposed by the national Standing Committee on April 13 is not necessarily an established plan arranged in the early stage, but a contingent decision made according to the latest changes in the situation. At the same time, the RRR reduction may not have an “immediate” effect on stimulating total demand, but it reflects the determination of monetary policy to take the initiative and move forward. It is a policy feedback resonant with market concerns, which aims to boost market confidence and alleviate pessimistic expectations.
Encourage banks to reduce provisions or increase “subprime loans” and improve risk tolerance. (1) By the end of 2021, the bank’s provision coverage was about 200%. The regulatory requirements for dynamic provision management of 120% – 150% for large state-owned banks were much higher than those of international peers, and there was a large room for regulation of “surplus grain reserves”. (2) The decision of the national standing committee to reduce the provision coverage rate of large banks at a regular pace will help encourage the sinking of large bank customers, guide the increase of credit support for “new citizens”, enterprises temporarily experiencing difficulties and inclusive small and micro sectors, improve risk tolerance, expand the denominator of provision coverage rate and encourage risk confirmation and write off. (3) Under the background of repeated impact of the epidemic and continuous fermentation of credit default risk in the real estate market, the asset quality of subsequent banks may be under pressure. This regulatory move may guide banks to strictly identify asset quality, increase the confirmation of non-performing loans in high-risk areas, and slow down the pressure on the quality of subsequent assets.
This “interest rate cut” is not another interest rate cut, but a “carrot” rather than a “stick”. We still look forward to greater measures in the future. (1) Strengthening debt cost control is “on the line”. From the performance of listed banks that have disclosed Q1 financial reports in 2022, the downward range of Q1 interest margin is obvious, and the downward trend of asset side interest rate and the squeeze of liability side interest rate occur simultaneously. It is expected that 2qnim pressure will be more prominent. (2) The original intention of the policy is to guide banks to reduce the cost of core time deposits and alleviate the “squeeze” of small and medium-sized banks on the deposit growth of state-owned banks through the “price war”. (3) Through the MPA incentive assessment measures to guide banks to reduce the interest rate of high-cost deposits, the impact of structural policies is small. The MPA assessment score of deposit interest rate of state-owned bank and Toutou urban rural commercial bank is good. The MPA assessment has insufficient incentive effect on state-owned bank and Toutou urban rural commercial bank, but it does not rule out that some small and medium-sized banks with relatively low scores will reduce the time deposit interest rate to obtain extra points. (4) It is expected that more measures to control the cost of liabilities will be introduced in the future, including but not limited to the establishment of “over quota management” under the self-discipline mechanism, the control of demand products such as agreed deposits, the re reform of the deposit interest rate quotation mechanism, the reduction of deposit interest rate spread, and the inclusion of structural deposit term right income into the assessment of the self-discipline mechanism.
The probability of LPR reduction on April 20 is small. Comprehensive consideration: (1) under the framework of structural liquidity shortage, the “support time” of this RRR reduction fund is relatively short. (2) Under the marginal cost pricing method, the improvement of debt cost by RRR reduction is far from enough to drive the adjustment of LPR quotation 5bp step size. (3) The preferential policies of the self-discipline mechanism are not attractive enough, and the improvement of the deposit side cost of the quotation bank is weak. (4) Loan interest rates have spontaneous downward pressure. Based on the principle of commercialization, the probability of LPR reduction on April 20 is small, and the decline of loan interest rate in the future depends more on the pressure drop LPR plus point spread effect caused by stable credit supply.
Risk tip: the credit supply is high, the continuity is not strong, and the Federal Reserve raises interest rates more than expected.
