policies implemented, stocks and bonds both bullish? ——interpretation of the financial policy "combination punch"
2024-09-25
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(the author of this article is chen xing, chief macro analyst of caitong securities)
core viewpoint
at the state council information office's press conference on financial support for high-quality economic development, the central bank announced a reduction in reserve requirement ratios and interest rates, as well as a reduction in existing mortgage rates. so, what are the central bank's considerations for further easing? how will real estate-related policies be adjusted? what is the impact of the reduction in existing mortgage rates?
the reserve requirement ratio and interest rate cuts were implemented simultaneously, and monetary easing was further strengthened.the central bank lowered the 7-day reverse repurchase rate by 0.2 percentage points to 1.5%, and at the same time cut the reserve requirement ratio by 0.5 percentage points across the board.on the one hand,domestic demand growth momentum weakened, and real interest rates were high against the backdrop of low prices;on the other hand,the fed's interest rate cut has started a pro-cyclical monetary policy at home and abroad. considering that the policy interest rate and the existing mortgage interest rate have been lowered, the pressure on the net interest margin of commercial banks has further increased, and the subsequent deposit interest rate may also decline simultaneously. the quarter-end cut in the standard is mainly based on four considerations:first,credit supply or seasonal increase;second,september is still the peak period for government bond issuance, and special bonds are concentrated in the last week of the month;third,the size of mlf maturing in subsequent months will increase;fourth,reduce bank liability costs and ease net interest margin pressure. in addition, if subsequent incremental fiscal tools are introduced, coupled with intensive issuance of government bonds, the central bank's reserve requirement cut can smooth out fluctuations in the money market, while increasing open market purchases and sales of treasury bonds and other coordinated fiscal efforts. the central bank announced the creation of new monetary policy tools to support the stable development of the stock market, which is expected to promote the development of direct financing and ease the operating pressure of non-bank institutions such as insurance.
how to adjust the interest rate of existing mortgage loans?the central bank proposed to guide banks to make batch adjustments to the interest rates of existing mortgage loans, lowering the interest rates of existing mortgage loans to near the interest rates of newly issued loans.the expected decline is around 50bp.benefiting 150 million people in 50 million households,on average, the total amount of household interest expenses will be reduced by about 150 billion yuan each year.at the same time, commercial personal housing loans at the national level will no longer distinguish between first and second homes.the minimum down payment ratio is uniformly set at 15%.according to the central bank’s estimates,this adjustment of the interest rate on existing mortgage loans will reduce borrowers' annual interest expenses by approximately rmb 150 billion.compared with the 170 billion yuan interest from the 23-year reduction in the interest rate on existing mortgage loans,the policy intensity has slightly decreased.after this reduction, the weighted interest rate of existing loans will drop from 4.17% to around 3.67%, and the interest rate spread with the current weighted interest rate of new mortgage loans of 3.45% will drop to 22bp. affected by the cancellation of the lower limit of the interest rate for new mortgage loans and the two reductions in the lpr, the interest rate of new mortgage loans has dropped by about 0.7 percentage points this year, and it will be difficult to drop sharply in the future.there is limited room for a significant reduction in existing mortgage loans.
what is the impact on the economy and the market? what is the impact on the economy?the lpr has continued to decline since 2023 and has now dropped to a low of 1.54. combined with the current reduction in the interest rate on existing mortgage loans, it is expected that the return on total bank assets will drop by 5bp. therefore, the central bank may guide deposit rates to further decline. this adjustment of the interest rate on existing mortgage loans will continue to narrow the interest rate spread between new and old mortgage loans.this may further alleviate the phenomenon of early repayment.considering the proportion of consumption expenditure to income last year, it is estimated that this policy will release interest expenditure of 150 billion yuan and stimulate social consumption by 102.5 billion yuan. however, according to statistics from the central bank,the 2023 interest rate cut policy will only stimulate consumption for one month after the policy is released.furthermore, since 2019, residents' expectations for consumption willingness and income have generally been on a downward trend.the long-term effect of stimulating consumption remains to be seen. what is the impact on the market?the support for buybacks and share purchases has increased, which is good for high-dividend industries;in the bond market,the increase in short-term risk appetite may increase bond market volatility, but as the overall debt cost of society decreases, the yield on government bonds will still have downward momentum.
at the state council information office's press conference on financial support for high-quality economic development, the central bank announced a reduction in reserve requirement ratios and interest rates, as well as a reduction in existing mortgage rates. so, what are the central bank's considerations for further easing? how will real estate-related policies be adjusted? what is the impact of the reduction in existing mortgage rates?
1. rrr cuts and interest rate cuts were implemented simultaneously, and monetary easing was further strengthened
the interest rate cut has been implemented and the magnitude of the reduction has increased.the central bank announced a reduction of 0.2 percentage points in the 7-day reverse repurchase rate. in july, the central bank had already reduced the 7-day reverse repurchase rate from 1.8% to 1.7%. this time it was further reduced from 1.7% to 1.5%.on the one hand,since the second quarter, the growth momentum of domestic demand has weakened, and against the backdrop of lower core cpi and ppi growth, real interest rates are still high, and there is a strong need to cut interest rates;on the other hand,the fed's interest rate cut has started a pro-cyclical currency movement at home and abroad. coupled with the recent strengthening of the rmb exchange rate, there is room for a reduction in the domestic policy interest rate. considering that the net interest margin pressure of commercial banks has further increased after the policy interest rate and the existing mortgage interest rate have been reduced, the subsequent deposit interest rate will decline simultaneously, and the lpr interest rate will also follow the 7-day reverse repurchase rate to reduce the financing cost of the real economy.
lower the reserve requirement ratio to release funds and coordinate fiscal efforts.the central bank announced a 0.5 percentage point reduction in the reserve requirement ratio, which is the second reduction this year after february, providing about 1 trillion yuan of long-term liquidity to the financial market. in addition, the central bank also announced that "depending on the market liquidity situation this year, it may further reduce the deposit reserve ratio by 0.25-0.5 percentage points." from the perspective of financial institutions,first,credit supply may rise seasonally at the end of the quarter, and the pressure on the bank's liability side will increase;secondly,september is still the peak period for special bonds issuance, and special bonds are concentrated in the last week of the month, so the capital demand is relatively large;again,the amount of mlf maturing in the following months of the year will increase, especially in november and december, when 1.45 trillion yuan of mlf will mature. the reserve requirement ratio cut can replace part of the maturing mlf;at last,lowering the reserve requirement ratio can reduce banks’ liability costs and ease the pressure on net interest margins.
in addition, judging from the current rhythm of fiscal revenue and expenditure, the combined revenue gap of the two accounts this year is about 1.6 trillion yuan. the necessity to accelerate the implementation of existing policies and introduce incremental policies is still strong. if subsequent incremental fiscal tools are introduced, coupled with intensive issuance of government bonds, the central bank's reserve requirement cut will be able to smooth out fluctuations in the money market. at the same time, it can increase open market buying and selling of treasury bonds and other coordinated fiscal efforts.
structural monetary policy has been strengthened to support non-bank and stock markets.the central bank announced the creation of new monetary policy tools to support the stable development of the stock market. first, it will create a securities, fund and insurance company swap facility to support eligible securities, funds and insurance companies to obtain liquidity from the central bank through asset pledge, thereby enhancing the institutions' ability to obtain funds and increase stock holdings. second, it will create a special re-loan for stock repurchase and increase holdings. the re-loan rate is 1.75%, and banks can add 0.5 percentage points on this basis to guide banks to provide loans to listed companies and major shareholders to support the repurchase and increase of stock holdings.on the one hand,this move can promote the development of direct financing and increase stock market liquidity;on the other hand,the operating pressure on non-bank institutions such as insurance is expected to be alleviated.
2.how to adjust the interest rate of existing loans?
the interest rate on existing mortgage loans is expected to drop by 50bp, and the minimum down payment ratio for second home loans will be reduced to 15%.at the state council information office press conference, the central bank proposed to guide banks to make batch adjustments to the interest rates of existing mortgage loans, lowering the interest rates of existing mortgage loans to near the interest rates of newly issued loans.the decline is expected to be around 50bp, benefiting 150 million people in 50 million households, and reducing household interest expenditure by about 150 billion yuan per year on average.to promote consumption and investment, reduce early loan repayments, and at the same time reduce the space for illegal replacement of existing mortgage loans.
at the same time, the central bank proposed that in order to better support the demand for improved housing for urban and rural residents,commercial personal housing loans at the national level will no longer distinguish between first and second homes, and the minimum down payment ratio will be unified at 15%.it is worth noting that the central bank pointed out that each locality should formulate policies based on its own situation, independently determine whether to adopt differentiated arrangements, and determine the lower limit of the minimum down payment ratio within its jurisdiction; commercial banks need to negotiate with customers to determine the specific down payment ratio level based on their risk status and willingness.
the scale of interest rate cuts is slightly lower than last year.the central bank mentioned in the "china regional financial operation report (2024)" that by the end of 2023, the interest rates of more than 23 trillion yuan of existing housing loans nationwide will be reduced, with an average reduction of 73bp, which can reduce the interest expenses of borrowers by about 170 billion yuan each year. with this reduction in the interest rate of existing loans, the central bank expects to reduce the annual interest expenses of borrowers by about 150 billion yuan, which is lower than last year, and the intensity of policy implementation has been slightly reduced.
further reduce borrowers' monthly payment burden.if calculated based on a 1 million yuan mortgage loan and equal principal and interest repayments, a 50bp reduction in the existing mortgage interest rate is expected to reduce the borrower's monthly payment by about 260 yuan. specifically, taking the repayment of a 1 million yuan mortgage with equal principal and interest signed in beijing and shanghai before 2019 for 20 years as an example: in october 2023, some existing mortgage interest rates in beijing can implement the lpr+0bp standard, and the adjusted minimum interest rate will be reduced from 4.85% to 4.2%, saving borrowers about 350 yuan in monthly payments; if the existing mortgage interest rate is reduced from 4.2% to 3.4% for new mortgages issued by mainstream banks in beijing, it will save borrowers about 420 yuan in monthly payments. in shanghai, assuming that home buyers have enjoyed the lowest lpr-20bp loan interest rate since october 2019, they will be less affected by last year's policy of reducing the interest rate on existing mortgages. if the mortgage interest rate is reduced from the lowest 4.0% to 3.4% for new mortgages issued by mainstream banks in shanghai, it can save about 310 yuan in monthly payments.
there is limited room for subsequent downward adjustment.according to statistics from the central bank, the weighted average interest rate of existing housing loans was 4.27% at the end of 2023. considering that the 5-year lpr was reduced by 10bp that year, the weighted average interest rate of existing housing loans after repricing in 2024 was about 4.17%. in the second quarter of 2024, the weighted average interest rate of newly issued housing loans fell to 3.45%, and the interest rate spread between the two reached 72bp. this round of interest rate adjustment allows home buyers and banks to lower the interest rate of existing mortgages to the level of newly issued mortgages through independent adjustments, eliminating the "periodic interest rate spread", and adjusted the interest rates of existing mortgage loansincrease range。
after a 50bp reduction, the weighted interest rate of existing loans will drop from 4.17% to around 3.67%, and the interest rate spread with the current weighted interest rate of newly issued mortgages of 3.45% will drop to 22bp. affected by the cancellation of the lower limit of the interest rate for newly issued mortgages at the national level in may this year and the two reductions in lpr, the interest rate of newly issued mortgages has experienced a sharp decline. according to cric research, the interest rate of new mortgages has dropped to an average of 3.2% for the first mortgage and 3.5% for the second mortgage, a cumulative decline of about 0.7 percentage points this year, and the cumulative decline in mortgage interest rates in some cities has reached 1 percentage point. therefore, it may be difficult for the interest rate of newly issued mortgages to drop sharply in the future.
3.what is the impact on the economy and the market?
in terms of the impact on the economy, banks' net interest margins were under slight pressure, pushing deposit rates down.the current performance of china's banking industry is still at the bottom of the cycle. the net interest margin of commercial banks has maintained a downward trend since it fell below the mpa (macro assessment) assessment requirement of 1.8 in the first quarter of 2023, and has now dropped to a low of 1.54. the reduction in the interest rate of existing mortgage loans has prompted banks to give consumers about 150 billion yuan in profits, accounting for 6.3% of the net profit of commercial banks in 2023, and is expected to lead to a 5bp decline in the return on total assets of banks. in order to hedge the impact of the reduction in lpr and the interest rate cut on existing mortgages, the central bank may guide deposit rates to further decline to reduce bank liability costs. referring to last year's interest rate cut policy, the four major banks reduced the 1, 3, and 5-year term loan rates by 0.1, 0.25, and 0.25 percentage points respectively in the fourth quarter to cope with the pressure on capital profitability.
the phenomenon of early loan repayment is expected to ease.early repayments put pressure on commercial banks to lose credit and suppress residents' daily consumption, which is an urgent problem that the existing mortgage policy needs to solve. according to the central bank's assessment of the effectiveness of the mortgage interest rate reduction policy last year, the amount of early repayments of personal housing loans nationwide reached 432.45 billion yuan in august last year. after the policy was introduced, the average monthly early repayment amount of mortgages from september to december fell by 10.5% compared with before the policy was introduced. however, since the interest rate after adjustment last year must not be lower than the lower limit of the mortgage interest rate policy in the city where the loan was issued, the repayment burden of residents' existing mortgages is still heavy, and the effect of alleviating the phenomenon of early repayment is limited. the rmbs early repayment rate indicator was still high at the end of the year.this adjustment of the interest rate on existing mortgage loans further narrows the interest rate gap between new and old mortgage loans, and the policy effect may be further released.
it will boost consumption in the short term, but the long-term effects remain to be seen.considering that the per capita consumer expenditure of the national residents accounted for about 68.3% of the per capita disposable income last year, this policy will release 150 billion yuan in interest expenditure and is expected to boost social consumption by 102.5 billion yuan. the reduction in the interest rate of existing mortgage loans last year had a significant effect on boosting consumption in the short term. according to statistics from the central bank, after the implementation of the interest rate cut policy on september 25, 2023, the national total retail sales of consumer goods in october of that year was 0.45% year-on-year, 0.21 percentage points higher than the average of the past five years, showing a super-seasonal rebound. however, the boosting effect only lasted for one month, and social retail sales fell again in november and december. in the long run, since 2019, residents' expectations for consumption willingness and income have generally been on a downward trend. against this background, the long-term effect of stimulating consumption remains to be seen.
in terms of the impact on the market, support for repurchases and share increases has been strengthened, which is beneficial to the high-dividend industry.
first, the central bank createdspecial refinancing for stock repurchase and increase of holdings, supporting the repurchase and increase of stock holdings. the proportion of funds provided is 100%, the re-lending rate is 1.75% (the loan interest rate of commercial banks to customers is around 2.25%), the first installment amount is 300 billion yuan, and it is applicable to enterprises regardless of ownership. if the evaluation is good, it will continue to be implemented. this means that some high-dividend industries will have a relatively considerable value return.
second, the csrc emphasized thatestablish a clear orientation of rewarding investors and improve the quality and investment value of listed companies. in terms of market value management,the csrc said it has studied and formulated the "guidelines for market value management of listed companies", which include requiring the board of directors to attach great importance to investor protection and investor returns, and requiring listed companies to establish a normalized repurchase mechanism arrangement.in terms of market-based systems,continue to optimize the institutional rules for each link such as issuance and listing, dividends, reduction of holdings, and transactions.in terms of investor protection,resolutely crack down on illegal and irregular activities such as financial fraud and market manipulation.
the bond market still has a tailwind in the short term.in the context of the full implementation of monetary policy, if the subsequent fiscal policy is also increased, the downward expectation of prices and the weak financing situation are expected to be reversed. for the bond market, the increase in short-term risk appetite may increase the volatility of the bond market. in the absence of a significant recovery in financing demand, as the liability costs of the real sector, banks and non-bank financial institutions are comprehensively reduced, the yield on government bonds still has downward momentum.
risk warning: policy changes may exceed expectations.this article's judgment on the policy tone is based on recent important meetings and policy statements, but if the economic recovery process slows down more than expected, domestic monetary, fiscal, industrial and other policies may be adjusted beyond expectations accordingly.
the economic recovery was less than expected.this article’s judgment on economic performance is based on public data and cannot predict future economic changes.
historical experience is no longer valid.historical economic environments and conditions cannot be exactly the same as today.
(this article only represents the author's personal views)
