Main points:
Event: MLF interest rate and LPR reduction
On January 17, 2022, the central bank lowered the one-year MLF operating interest rate by 10bps (from 2.95% to 2.85%), lowered the one-year LPR by 10bps (3.8% to 3.7%) and the five-year LPR by 5bps (4.65% to 4.60%) respectively.
Main conclusions:
The effect signal of this reduction is greater than the essence, and more policies are still needed to stabilize growth in the future, including but not limited to expanding the scale of MLF, broadening the scope of collateral, reducing reserve requirements and stronger financial policy support.
Before there are signs of further loosening of real estate and housing loan policies, we still believe that the main impact of this adjustment is to promote the increase of small and micro enterprise loans, personal consumption and business loans. We recommend Bank Of Ningbo Co.Ltd(002142) , China Merchants Bank Co.Ltd(600036) , Postal Savings Bank Of China Co.Ltd(601658) and Ping An Bank Co.Ltd(000001) .
Specific impact on Banking and macro economy
The reduction of MLF interest rate and LPR is intended to guide the cost of liabilities and loan interest rate downward respectively, specifically:
From the perspective of transmission mechanism, it is difficult to measure the specific impact of MLF interest rate reduction on each listed bank. However, as the main tool of the current monetary policy framework, MLF has clear collateral requirements. Qualified collateral includes high-quality bonds such as treasury bonds, central bank bills, policy financial bonds and high-grade credit bonds. For banks with a large proportion of qualified collateral, when the MLF interest rate is lowered, the greater the degree of pushing the loan interest rate downward. The larger the scale of qualified collateral, the larger the scale of borrowing from the central bank and the greater the role of promoting the scale of loan delivery. Therefore, after the MLF interest rate is lowered, it is necessary to expand the scale of investment as a supplement.
From the perspective of structure, LPR pricing presents two characteristics: first, in practice, LPR mainly affects the product pricing of retail and small and micro enterprises, and medium-sized and above enterprises are closer to risk pricing and depend on relative bargaining power; Second, large and medium-sized banks can generally adjust their pricing according to LPR, but small banks mainly adopt the follow-up strategy.
From the perspective of volume and price, volume has a greater impact on the current bank profit growth and risk, and it is also a greater constraint on economic growth. First, the decrease of LPR since 2020 has been accompanied by the decline of Bank net interest margin, but the overall profit growth rate is still high (especially banks relying on small and micro enterprises and personal loan business). Second, when loans maintain rapid growth, the non-performing rate is naturally low. Third, the proportion of financial expenses of industrial enterprises in revenue has decreased significantly, and the main restriction of credit volume comes from the decline of revenue growth. From the perspective of micro incentive, normal enterprises will choose to expand the table only when the return on investment is satisfactory. Poorly managed enterprises may be more willing to repay their debts than to expand their operations (Gu chaoming mechanism). There is no loosening of real estate policy, and the expansion of steady growth needs.
To sum up:
The effect signal of this reduction is greater than the essence, and more policies are still needed to stabilize growth in the future, including but not limited to expanding the scale of MLF, broadening the scope of collateral, reducing reserve requirements and stronger financial policy support.
Before there are signs of further loosening of real estate and housing loan policies, we still believe that the main impact of this adjustment is to promote the increase of loans to small and micro enterprises, personal consumption and business loans.
Investment advice
Before there are signs of further loosening of real estate and housing loan policies, we still believe that this adjustment mainly promotes small and micro enterprise loans, personal consumption and business loans. Bank Of Ningbo Co.Ltd(002142) , China Merchants Bank Co.Ltd(600036) , Postal Savings Bank Of China Co.Ltd(601658) and Ping An Bank Co.Ltd(000001) are recommended.
Risk tips
The macro economy went down more than expected.
