Breaking news! On June 24, the People's Bank of China announced a "targeted reserve requirement cut": starting from July 5, 2018, the reserve requirement ratio for state-owned large commercial banks, joint-stock commercial banks, postal savings banks, urban commercial banks, non-county rural commercial banks, and foreign banks will be reduced by 0.5 percentage points. This is already the third targeted reserve requirement cut by the central bank this year.
The specific measures of this targeted reserve requirement cut include the following aspects:
1. Encourage five state-owned large commercial banks and twelve joint-stock commercial banks to use the targeted reserve requirement cut and funds raised from the market to implement "debt-to-equity" projects based on market pricing principles. Support the entities implementing "debt-to-equity" to genuinely exercise shareholder rights, participate in corporate governance, and promote mixed-ownership reform.
2. The funds from the targeted reserve requirement cut do not support projects related to "shell companies" and "zombie enterprises".
3. Postal savings banks and urban commercial banks, as well as non-county rural commercial banks, should primarily use the reserve requirement cut funds for loans to small and micro enterprises, focusing on alleviating the financing difficulties and high costs faced by small and micro enterprises.
What is the impact of the central bank's targeted reserve requirement cut?
Since this targeted reserve requirement cut and the one in April are clearly aimed at alleviating the financing difficulties and high costs for small and micro enterprises, the most direct beneficiaries of this policy are undoubtedly small and micro enterprises.
Announcing this liquidity release at a time when the stock market is particularly sensitive undoubtedly brings good news for the stock market. However, based on the market trends following the last eight reserve requirement cuts, the A-shares showed four increases and four decreases the day after the announcement. Moreover, the three major stock indices in the A-share market plunged yesterday, making it difficult to find clear opportunities in the short term, so caution is still advised.
From the perspective of the real estate market, on the surface, the "targeted reserve requirement cut" is mainly aimed at the real economy and is unrelated to the property market. In fact, bank funds always flow into the property market in various ways because of the high returns in the property market, so this reserve requirement cut is also a significant benefit for the property market. In previous cycles of reserve requirement cuts, the real estate market also showed signs of warming in transactions.
However, future structural deleveraging will remain a key focus, continuing to restrict financing for real estate companies and state-owned enterprises in overcapacity industries, as well as regulating local financing platforms.
According to Haitong Securities' research report, the differentiation in the bond market will remain the main theme in the future, with interest rate bonds and high-grade credit bonds being the preferred options, while caution is still needed for low-grade credit bonds.
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