The boots of interest rate reduction were put on the ground, and the medium and short-term policy interest rates were reduced by 10bp simultaneously
On January 17, 2022, the central bank carried out RMB 700 billion one-year medium-term lending facility (MLF) and RMB 100 billion open market seven-day reverse repurchase, and their bid winning interest rates decreased by 10bp to 2.85% and 2.10% respectively. The MLF operation volume of 700 billion yuan is greater than the maturity volume of 500 billion yuan in January. The continuation of the excess will help to hedge the impact of the early issuance of special bonds this year and the possible large scale of tax payment in January, so as to smooth the capital fluctuation during the Spring Festival.
The countercyclical regulation and control policy is overweight, reflecting the determination to stabilize growth
This is the first time that the central bank has lowered the policy interest rate since April 2020, and the medium and short-term policy interest rates have been lowered simultaneously. This adjustment is only one month from the comprehensive RRR reduction and LPR interest rate reduction in December last year. The policy frequency and intensity are far higher than in the past, and the policy signal and actual impact of wide currency are enhanced. Due to the increased probability of the Federal Reserve starting to raise interest rates in March, the time window for China to cut interest rates is relatively short. The central bank paid close attention to the policy window and cut interest rates in January to enhance the ability and willingness of banks to extend credit, reflect the forward-looking operation of monetary policy and the determination to stabilize growth, help stabilize market expectations and boost market confidence.
MLF adjustment gives LPR room to decline, with limited impact on banks
Considering that the main purpose of the central bank’s interest rate reduction through MLF is to promote the steady decline of comprehensive financing costs of enterprises, we judge that LPR is likely to decline this month. Historically, the interest rate gap between 1-year LPR and 1-year MLF is relatively stable; The decline of 5-year LPR generally does not exceed that of 1-year LPR, which is 5 or 10bp. Under the condition that MLF decreases by 10bp, we adopt the assumption that there is a relatively large negative impact on the bank’s asset side return, that is, assuming that the LPR in the 1-year and 5-year periods of this month decreases by 10bp respectively. According to our calculation, this will reduce the net interest margin of listed banks and the year-on-year growth rate of net profit in 2022 by 3bp and 1.79pct respectively, with a relatively neutral impact on the fundamentals of banks.
The broad credit expectation is strengthened, and the follow-up policy combination is expected
Since last year, the policy of reducing reserve requirements and interest rates has been intensively released, strengthening the broad credit expectation in the first half of the year. Similar policy lines can refer to the economic downturn after the 2012 financial crisis. After the people’s Bank of China lowered the reserve requirement in November 2011, the interest rate was cut for the first time in June 2012, and the amount of social finance increased in the second half of the same year. In July last year, the reserve requirement was lowered and the “double drop” in December. In January this year, the interest rate was cut again. The policy intensity is greater than in the past. In the first half of the year, infrastructure and currency are expected to increase at the same time, driving the upward trend of credit and social finance in the future.
Investment suggestion: counter cyclical policy overweight, optimistic about the improvement of valuation under broad credit expectation
We believe that the reduction of MLF shows that monetary policy is changing from unilateral interest transfer by banks to policy dividend transmission by banks, and the policy environment is developing well. At present, the valuation of the banking sector is mainly suppressed by risk. In the future, with the increase of countercyclical policy and the marginal relaxation of real estate policy, the overall credit risk may be alleviated, and banks can hedge the downward pressure on interest margin and dilute risk through asset expansion, and the sector valuation is expected to improve. In terms of individual stocks, it is recommended to pay attention to bank targets with asset expansion ability and low risk, and recommend China Merchants Bank Co.Ltd(600036) , Postal Savings Bank Of China Co.Ltd(601658) , Bank Of Ningbo Co.Ltd(002142) , Wuxi Rural Commercial Bank Co.Ltd(600908) , Industrial Bank Co.Ltd(601166) , Bank Of Chengdu Co.Ltd(601838) .
Risk tip: the economic downturn exceeded expectations, China’s foreign policy adjustment exceeded expectations, and the risk was intensively exposed
