Event: on May 20, 2022, the people’s Bank of China authorized the national interbank lending center to announce that the quoted interest rate (LPR) of the loan market on May 20, 2022 is: 1-year LPR is 3.7%, and more than 5-year LPR is 4.45%.
The 5-year LPR quotation was lowered more than expected. This five-year LPR reduction is the first monthly reduction of 15bp since the reform of LPR pricing mechanism. Compared with the half reduction of 5bp of five-year LPR in January 2022, this month’s quotation has more signal and substantive significance. At the same time, there are two changes in this LPR reduction: first, only the five-year LPR is reduced, and the one-year LPR is not reduced at the same time, which reflects the urgency of reducing the interest rates of medium and long-term loans to enterprises and residential housing loans at present; Second, this is not a reduction guided by the reduction of reserve requirement and interest rate, which means that although the policy interest rate remains unchanged and the comprehensive reduction of reserve requirement has not been implemented, the five-year LPR can still be reduced separately, which only occurred in the quotation of one-year LPR in the past.
It is more meaningful to reduce the 5-year LPR alone. Compared with the one-year LPR adjustment, which mainly affects liquidity loans, the five-year LPR reduction has a greater coverage of reducing the financing cost of the whole society. At the end of the year, the weighted real estate loan interest rate of residents in the second half of the year continued to decline by – 4.5%, which had a significant impact on the sales of commercial real estate, but the overall interest rate of commercial real estate loans continued to decline by – 5.5% in the second half of the year; On the other hand, the five-year LPR is also related to the interest rates of medium and long-term manufacturing and infrastructure supporting loans. At present, the phenomenon of medium and short-term loans and bill impulse of enterprise loans is serious. In April, the medium and long-term loans of enterprises increased by 395.3 billion yuan year-on-year, and the decline of financing costs of the whole society is more conducive to the release of loan demand after the epidemic is alleviated.
The impact of the adjustment of deposit interest rate on the market. The 5-year LPR reduction did not follow the 1-year MLF interest rate reduction, but was driven by the market-oriented adjustment mechanism of deposit interest rate, which was transmitted from the reduction of medium and long-term debt cost of banks to the reduction of loan interest rate. From the statement of the central bank’s monetary policy implementation report in the first quarter, column 1 and column 2 respectively show that the two paths of interest rate transmission are “market interest rate + central bank guidance → LPR → loan interest rate”, “loan market interest rate represented by one-year LPR + 10-year Treasury bond interest rate → deposit interest rate”. Therefore, after the deposit interest rate is reduced by the interest rate self-discipline mechanism, the pressure on the net interest margin of commercial banks is reduced, which is compared with the reduction of MLF interest rate, The linkage reduction of deposit and loan interest rates will weaken the impact on the net interest margin of commercial banks, which is more conducive to stabilizing the cost of bank liabilities and improving the sustainability of financial support entities. At the same time, when the central bank puts more emphasis on the problem of “accelerating the tightening of monetary policy in major developed economies”, without relying on the reduction of reserve requirements and interest rates as a guide, a separate reduction of LPR interest rate can also reduce the impact of policy dislocation.
Overall, we believe that: 1 The 15bp reduction in the five-year LPR is a strong stimulus to the credit demand of residents and enterprises after the reduction of the actual debt cost of banks, and it is also a rapid implementation of the Symposium on stabilizing growth and stabilizing market players to ensure employment on May 18; 2. This adjustment has changed the inherent path of the transmission from MLF to LPR in the past and reduced the impact of the accelerated tightening of monetary policies in developed economies; 3. In order to cope with the adjustment of loan costs of commercial banks, it is expected that the capital level will remain appropriately abundant before the credit scale and structure improve.
Risk warning: credit supply exceeds expectations; Tight liquidity environment; The impact of covid-19 epidemic in China has expanded.
