The Zhitong Finance App learned that on January 24, Central Bank Governor Pan Gongsheng said at the press conference that the reserve ratio will be lowered by 0.5 percentage points on February 5 to provide long-term liquidity to the market by 1 trillion yuan; on January 25, small reloans to support agriculture and rediscount interest rates will be lowered by 0.25 percentage points, while continuing to promote a steady decline in comprehensive social financing costs. Liang Si, a researcher at the Bank of China Research Institute, said that the downgrade can not only release liquidity and encourage banks to increase credit investment and reduce restrictions on bank credit expansion, but also reduce pressure on bank debt to drive down credit interest rates, ease corporate financial burdens, and achieve the effect of “volume increase and price reduction.” Related subjects: Postbank (01658), Bank of China (03988), Agricultural Bank (01288), Industrial and Commercial Bank (01398).

Pan Gongsheng pointed out that at present, there is still enough room for China's monetary policy. Relevant departments will balance the relationship between short-term and long-term, steady growth and risk prevention, internal balance and external balance, strengthen countercyclical and cross-cycle adjustments, and create a favorable monetary and financial environment for the operation of the economy. China's current average statutory reserve ratio is 7.4%. Compared with central banks in major international economies, there is still plenty of room. This is an effective tool to supplement the medium- to long-term liquidity of the banking system. The deposit reserve ratio will be officially implemented on February 5. It will be lowered by 0.5 percentage points and will provide the market with long-term liquidity of about 1 trillion yuan.

Pan Gongsheng said that in terms of interest rates, monetary policy operations stick to me as the main focus. The current price level is still far from the expected price target. Major domestic banks lowered deposit interest rates in November and December 2023. Starting January 25, they will reduce the agricultural support small reloan and rediscount interest rates provided to financial institutions from 2% to 1.75%. These measures will all help drive the loan market's quoted interest rate, which is the benchmark for credit pricing, to decline. The market generally anticipates a shift in the Federal Reserve's monetary policy. Objectively, it is also beneficial for China to expand the operating space for monetary policy.

On the evening of the 24th, the central bank issued an announcement stating that it will fully implement the spirit of the Central Economic Work Conference and the Central Financial Work Conference, earnestly implement the decisions and arrangements of the Party Central Committee and the State Council, implement sound monetary policies flexibly, moderately, accurately and effectively, increase macroeconomic control, strengthen countercyclical and cross-cycle adjustments, maintain reasonable and abundant liquidity, promote the scale of social financing and money supply in line with the expected goals of economic growth and price levels, maintain the basic stability of the RMB exchange rate at a reasonable equilibrium level, and continue to promote effective qualitative and quantitative growth of the economy.

On the same day, the central bank and two other departments jointly issued the “Notice on Accomplishing the Management of Operational Property Loans”, clarifying that by the end of 2024, for real estate development enterprises that regulate operations and have good development prospects, on the basis of manageable risk and commercial sustainability, in addition to issuing operating property loans for operating capital requirements related to the property itself, loans formed from the replacement of purchased properties and shareholder loans, etc., it can also issue operating property loans to repay loans and open markets related to real estate development enterprises and their group holding companies (including consolidated subsidiaries) in the real estate sector bonds.

According to Yang Delong, chief economist of the Qianhai Open Source Fund, the central bank downgrade is timely and will help boost market confidence. Yan Yuejin, research director of the Yiju Research Institute, also believes that the news of this downgrade also revolves around the direction of serving the real economy. It also means that the 2024 financial easing cycle will continue to begin, which will have a positive effect on setting the work tone and clarifying expectations throughout the year.

The chief economist of CITIC Securities clearly believes that overall, the timing and scale of this downgrade have greatly exceeded market expectations, reflecting the central bank's clear support for the real economy's recovery goals. In January, the liquidity gap was large in an environment where demand for cash was rising seasonally. The capital interest rate center rose somewhat towards the end of the month. It is expected that the liquidity environment will improve further after this downgrade is implemented.

It was clearly emphasized that this downgrade and reloan interest rate cut were announced at the same time. Although there are downgrading+targeted interest rate cuts in history, the “downgrading+targeted interest rate cut” model is rare, indicating the precise and effective tone of the central bank's monetary policy. This downgrade may not be the last total operation in this round of monetary easing.

Wang Qing's team, chief macro analyst at Dongfang Jincheng, also pointed out that the current downgrade is in line with market expectations. The increase in the downgrade has released a signal that monetary policy is strengthening steady growth, helping to boost market confidence and consolidate the positive trend of economic recovery. Regarding the central bank's announcement that it will cut agricultural support small reloans and rediscount interest rates by 0.25 percentage points, Wang Qing's team said that this shows that in addition to introducing aggregate monetary policy tools, structural monetary policy is also focusing on weak links in the national economy. Later fiscal policy tax reduction and fee reduction policies for small and micro enterprises will also be introduced in due course.

Liang Si, a researcher at the Bank of China Research Institute, said that interest rate cuts and downgrades as policy instruments will help reduce banks' liquidity costs and regulatory pressure, and further enhance banks' ability to invest in credit. Liang Si believes that the three rural areas, small and micro enterprises, etc. are weak links in China's economic development. Supporting agriculture and supporting small reloans and rediscounts are important tools for the People's Bank of China to support the development of related fields. The reduction in interest rates on these two instruments has reduced the cost of commercial banks to obtain capital and helped drive down credit interest rates in related fields.

He said that as a routine liquidity management method, the statutory reserve ratio not only plays the role of a buffer pool in the financial market, but also plays the function of “supervising” bank credit expansion. At the same time, the frozen liquidity of deposit reserves will also increase banks' operating costs. Therefore, the downgrade can not only release liquidity and encourage banks to increase credit investment and reduce restrictions on bank credit expansion, but also reduce bank debt pressure to drive down credit interest rates, ease the financial burden on enterprises, and achieve the effect of “volume increase and price reduction.”

Related concept stocks:

Postbank (01658): Bank personal deposits account for 89%, and individual fixed-term accounts for 2/3; and in the term structure, deposits within 1 year term (non-current) account for 60%, which is basically the highest level of listed banks.

Bank of China (03988): According to the Bank of China's three-quarter quarterly report, at the end of September, total customer deposits were 22689.045 billion yuan, an increase of 248.720 billion yuan over the end of the previous year, an increase of 12.31%. Among them, RMB customers in mainland China made deposits of 17709.096 billion yuan, an increase of 2137.485 billion yuan over the end of the previous year, an increase of 13.73%.

Agricultural Bank (01288): According to the Agricultural Bank's three-quarter report, at the end of September, the bank's total debt was 358,76.558 billion yuan, an increase of 4624.830 billion yuan over the end of the previous year, an increase of 14.80%. Deposits were absorbed at 288,23.215 billion yuan, an increase of 372.175 billion yuan over the end of the previous year, an increase of 14.74%. Absorbed deposits (excluding accrued interest) are divided according to the term structure, with fixed deposits of RMB 15286.120 billion, current deposits of RMB 12408.589 billion, and other deposits of RMB 702,743 billion; by type of business, corporate deposits are RMB 1076.337 billion, personal deposits of RMB 16930,372 billion, and other deposits of RMB 702,743 billion.

Industrial and Commercial Bank (01398): According to ICBC's three-quarter report, at the end of September, the bank's total debt was 40806.945 billion yuan, an increase of 4712.218 billion yuan over the end of the previous year, an increase of 13.06%. Customer deposits were RMB 3398,826 million, an increase of RMB 4110.335 billion, an increase of 13.76%. From a structural point of view, time deposits amounted to 19464.578 billion yuan, current deposits of 13792,033 billion yuan, other deposits of 217.859 billion yuan, and accrued interest of 506.356 billion yuan.