① On the one hand, the core demand that supports banks' sky-high credit is about to disappear, and on the other hand, banks' interest spreads and capital are unable to continue to support sky-high credit. ② The scale at which banks face loan maturity is not small. An incremental decline means that the total amount of credit may gradually shrink. ③ If the economic environment improves further next year, real loans to small and medium-sized enterprises will rise. If risks can be controlled, bank interest rates may rise.
Financial News Agency, November 28 (Reporter Liang Kezhi) On November 27, the central bank released the monetary policy implementation report for the third quarter of 2023 (hereafter referred to as the “Report”). In the third quarter after the previous developments, the market paid attention to the “Report”, which revealed the central bank's new guidance in the financial field.
Many institutions, such as CICC, Guangfa, and Zhejiang merchants, have noticed the new formulation and information behind it in column 2 of the “Report”, “Revitalizing Stock Funds and Improving the Efficiency of Use of Funds.”
On November 28, Lin Yingqi, chief banking analyst in the research department of CICC, expressed his opinion that column 2, which explains “revitalizing existing capital and improving the efficiency of capital use,” means that the need for continued high credit growth in the long run may decrease.
According to central bank data, at the end of September 2023, the balance of financial institutions' local and foreign currency loans was 239.5 trillion yuan, an increase of 19.5 trillion yuan over the beginning of the year, which means that the average monthly increase in loans exceeds 2 trillion yuan, which is rare in recent years.
At the same time, column 2 emphasizes that “in order to balance credit growth and narrowing of net interest spreads, the banking industry also needs to seek a new level of reasonable credit growth.”
In response, on November 28, Li Chao, chief economist of Zheshang Securities, expressed his opinion that the decline in the “price” of loans also means that the current overall “supply exceeds demand” in the credit market. If banks continue to invest in large amounts of incremental loans, the pressure on their own net interest spreads will continue to increase when demand from the physical sector is relatively weak, which is not conducive to the retention of profits and the sustainability of subsequent capital accumulation and credit investment.
Revitalizing stocks: Tianliang Credit will exit next year
The reason behind the central bank's proposal to revitalize the loan stock is that data shows that since January 2018, the domestic loan growth rate has remained at a high level of more than double digits; currently, China's RMB loan balance exceeds 230 trillion yuan, increasing by about 20 trillion yuan every year, and the capital stock is far greater than the annual increase.
On November 28, Zhong Linnan, an analyst at Guangfa Securities, said that the central bank directly proposed “the effectiveness of using debt to drive economic growth has decreased, the relationship between supply and demand for real estate has changed significantly, and the urgency to accelerate economic transformation has increased,” pointing more clearly to current obvious issues such as internal and external interest spreads, local debt, and real estate.
In the “Report”, the central bank said that real estate loans, which accounted for 40% of new loans after 2018, continued to decline, and accounted for almost zero by 2023. At the same time, under the local debt settlement plan, loans from local financing platforms are gradually repaid, and the increasing share of direct financing has substitution effects on loans, etc. These have all become objective factors in which the banking system must adjust its stock structure.
On November 27, the general manager of the sales department of the head office of a commercial bank in a certain city told the Financial Association that since this year's good start, banks have competed for loans for state-owned enterprise projects and major infrastructure projects, and are very careful about loans to private enterprises. In particular, real estate companies have hardly touched them.
On the one hand, the core demand that supports banks' sky-high credit is about to disappear, and on the other hand, banks' interest spreads and capital are unable to continue to support sky-high credit.
According to an analysis by Liang Fengjie of Zheshang Securities on November 28, the main path proposed by the central bank to revitalize existing capital is still subtraction, including dealing with declining real estate demand, urban investment debt repayment, infrastructure revitalization, and financing structure optimization.
This is expected to have a direct impact on credit investment in the fourth quarter and early next year.
On November 28, Zhang Wei, chief fixed income analyst at Fangzheng Securities, believes that in the past two years, it has been obvious that loans at the beginning of the year, loans at the end of the quarter, and loans at the beginning of the quarter have been quite obvious, which will cause some disturbance in the capital market. The central bank report said it will focus on smoothing the pace of credit investment. It is expected that the credit investment in November-December may be supported, while the credit impulse in 2024 may be suppressed to a certain extent.
It is worth noting that in a situation where loan growth falls, the scale at which banks face maturity is not small; one increase or decrease means that the total amount of credit may gradually shrink.
According to estimates by Leung Fung-kit's team, at the end of 23H1, the proportion of loans maturing naturally within 1 year from listed banks was 22%. Therefore, it is estimated that the amount of RMB loans that naturally mature within 1 year in the banking system may reach 51 trillion yuan, far exceeding the net investment of 21 trillion yuan for the full year of 2022.
Balance volume and price again: Partial interest rates rise, interest spreads may bottom out
According to central bank data, at the end of September, the balance of financial institutions' local and foreign currency loans was 239.5 trillion yuan, up 10.2% year on year, 19.5 trillion yuan more than at the beginning of the year, and 1.4 trillion yuan more than year on year. The RMB loan balance was 234.6 trillion yuan, an increase of 10.9% over the previous year. The current stock loan amount is roughly ten times the annual increase.
Lin Yingqi of China Financial Corporation believes that the central bank requires banks to “grasp the balance between credit growth and the narrowing of net interest spreads,” pointing out the current problem of insufficient credit demand while excessive credit growth is putting pressure on interest spreads.
The central bank said that the weighted average interest rate on loans continues to be at a historically low level. The “Report” shows that in September, the weighted average interest rate for newly issued loans was 4.14%, down 0.2 percentage points from the previous year.
However, in the third quarter of this year, the net interest spread of commercial banks was 1.73%, a slight decrease of 0.01% from the first quarter and the second quarter of this year, which is at an all-time low.
The urban businessman mentioned above believes that the real demand for loans from small and medium-sized enterprises is generally urgent and frequent. In the face of “fleeting” business opportunities, their ability to withstand interest rates is also relatively high; on the contrary, for the deposit and loan business of large enterprises, the bargaining power of banks is very low. In terms of efficiency, it is difficult to obtain corresponding benefits without taking risks.
Zheshang Securities Liang Fengjie's team believes that the People's Bank of China pointed out that the banking industry should seize the balance between credit growth and narrowing of net interest spreads. The pace of credit supply is expected to slow down in the first quarter of 2024, the credit oversupply situation is expected to improve, and the downward trend in loan interest rates is expected to stabilize.
The urban businessman mentioned above believes that with the recent call for an increase in loan policies for private enterprises, the supporting measures will encourage banks to lend to a certain extent. If the economic environment improves further next year, real loans to small and medium-sized enterprises will rise. If risks can be controlled well, bank interest rates may rise.