On October 18, Caixin reported (Reporter Liang Kezhi) that today, the official website of the central bank released a notice regarding the establishment of stock repurchase and shareholding reloan policies, further implementing the tools for stock repurchase and shareholding reloans. The notice clarifies the roles and requirements of listed companies, financial institutions, and the central bank, and also specifies the measures for "supervision and management".

Today, Pan Gongsheng, Governor of the central bank, emphasized that the funds provided by the central bank for stock repurchases and shareholding reloans have specific directions, and it is still a red line in financial regulation that credit funds must not illegally enter the stock market.

On October 18, the head of the investment banking department of a commercial bank's Guangzhou branch told Caixin that the policy requirements are basically consistent with the information previously disclosed. From the current policies and market trends, the gradual recovery of stock market and market confidence is a high-probability event, and the overall risk of loans is still controllable.

Specifically, banks should pay attention to the pledge rate and stock market risks in their operations. When stock prices and market risks occur, the safety cushion of risks is very important. Previously, stock pledge loans were also made into stock pools, with the pledge rate generally between 60% and 80%, and even up to 90%.

Regarding loan risks, the notice also emphasizes "special funds for special purposes, closed operation".

On October 18, a chief analyst at a large brokerage bank in Beijing expressed to Caixin that banks are still very positive about this business. Although the interest rate difference for share buyback and shareholding loans is not particularly large, this business can be used to expand and maintain listed company clients, and generate more business opportunities.

It is worth noting that the notice emphasizes that "this policy is a phased arrangement. Financial institutions that are not within the scope of this policy support must strictly adhere to existing regulatory requirements".

Policy highlight 1: Strictly control the entrance.

The notice specifies the basic conditions for major shareholders to increase their shareholding, that is, major shareholders buy stocks of listed companies through centralized bidding. The listed companies with share increases by major shareholders must not have been subject to delisting risk warnings. Major shareholders are generally shareholders holding more than 5% of the shares of listed companies, have the ability to fulfill debts, and have had no major illegal activities in the past year. Major shareholders' share increases should disclose their shareholding plans.

The above investment bank personnel believe that since the end of September, there have indeed been cases of shareholders reducing their holdings in some companies, but from a macro perspective, according to the judgment of the head office, the price bottom of domestic assets has basically been consolidated, and the subsequent trend should be upward. At this time, the market demand for share buybacks, increases in holdings, and re-lending is quite positive, while the risks of pledge are also relatively low.

The central bank's notice also emphasizes that loans should be granted based on the officially disclosed repurchase plans or shareholder shareholding plans of listed companies, and should be included in unified credit assessment; the loan amount should not exceed a certain proportion of the repurchase and shareholding funds. Based on the principle of interest rate discounts, the loan interest rate should be reasonably determined, generally not exceeding 2.25%, exempting from the execution of interest rate self-regulation agreements.

Reporters from Financial Union noted that more than 2000 listed companies have disclosed plans for increases in holdings or buybacks this year.

According to the latest report from Sinda Information, from January 1, 2024, to October 11, a total of 1295 companies have announced plans to increase their holdings; during the same period, 783 companies have announced buyback plans. Among them, companies planning buybacks with a large proportion relative to their market capitalization on the plan date include: Hunan Zhongke Electric with a planned buyback ratio of approximately 6.81%-13.61%; Angel Yeast Co., Ltd. with a planned buyback ratio of approximately 1.22%-1.54%.

Policy highlight 2: "Specialized funds for specific use, closed operation"

The notice requires strict management of loan funds. It is necessary to ensure that loan funds are "specialized funds for specific use, closed operation". 21 financial institutions have opened dedicated bank loan accounts for listed companies and major shareholders, while also opening fund accounts corresponding to the aforementioned dedicated securities accounts. These 21 financial institutions will disburse loans to the fund account, supervising listed companies and major shareholders to strictly use the funds for stock buybacks and increases in holdings. Until the loan is fully repaid, the fund account is not allowed to withdraw cash or make external transfers.

The above analysts believe that the central bank's notice mentions the importance the central bank places on loan risks through earmarked use of funds and fund custody, as stock market fluctuations can affect the risks of pledges.

In terms of internal control mechanisms, the notice also requires the improvement of internal control measures. 21 financial institutions should establish and improve relevant systems and internal control measures in accordance with the principle of priority to internal controls and the establishment of systems, develop policies, standards, and procedures for share buyback and equity loan, establish dedicated loan products and statistical items, specify repayment sources and qualified collateral issuance conditions, and strengthen related business risk management.

In response, the above investment banking personnel stated that specific to bank operations, attention should be paid to the risk of pledge ratio and stock market trends. Once stock price and market risks emerge, the safety margin for risks is crucial. Previously, stock pledge loans were made in stock pools with pledge ratios generally ranging from sixty to eighty percent, with a maximum of ninety percent, but the risks are significant.

There are also national bank professionals who told reporters that considering credit risks, in subsequent actual operations, buying stocks may not necessarily be the main collateral consideration, but more attention will be given to the borrower's comprehensive credit rating, etc.