On January 4, the Ministry of Finance of the Communist Party of China (CPC) released the “Commercial Bank Performance Evaluation Measures”, which emphasizes the ability of commercial banks to respond to the macro policies of the CPC and to serve the real economy and the micro economy. In response, Bloomberg reported, citing analysts, that the Measures lowered banks’ requirements for economic efficiency, signaling that the banking system will “yield” to the real economy more fully in the future, and that interest rate differential compression is inevitable.
Bloomberg reported on Jan. 7 that the Ministry of Finance of the Communist Party of China (CPC) has just issued a bank performance evaluation scheme that retains only the “return on net assets” indicator and further reduces the weighting factor from 10% to 8%, a clear departure from the scheme issued in 2016, which put profitability assessment in the first place.
According to the report, while weakening the profit assessment index, new specific requirements have been added, including serving the ecological civilization strategy, strategic emerging industries and small and micro enterprises, indicating that the CPC government wants to direct commercial banks’ credit resources to what the CPC considers to be key areas and weak links.
According to a review released by Guotai Junan analyst Hua Changchun, “This is undoubtedly the most direct and unambiguous request for the financial industry to transform to serve the real economy and change the investment of financial resources through performance evaluation and credit indicators.” Therefore, the cost of real financing is expected to go down further, and this decline is likely to be brought about by banks’ concessions, i.e. narrowing interest rate spreads.
Along with the announcement of the scheme, the Communist Party regulator also called for the establishment of a concentration management system for real estate loans in the banking sector, with the ratio of housing loan balances to the balance of all RMB loans capped at 40% for large state-owned banks and 32.5% for personal housing loans from January 1.
Bloomberg reports that this policy is intended to reduce the potential systemic risks associated with mortgage concentration and to pool more resources into government-supported areas.
At the close of market on Jan. 7, Postbank was down 1.35% and Harbin Bank was down 1% in Hong Kong, while Bank of Chengdu was down 1.77% in the A-share market.
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