Changes: The non-financial leverage ratio is stabilizing

2022-05-19 0 By

Source:Ci Yupeng, Reporter from China Business News, Zhang Rongwang, Beijing, February 15, the National Financial and Development Laboratory released the 2021 China Leverage Ratio Report (hereinafter referred to as the report), pointing out that the macro leverage ratio in 2021 dropped from 270.1% at the end of 2020 to 263.8%, down 6.3 percentage points in the whole year.We will deleverage to a large extent.It is worth noting that in terms of leverage ratio structure, the non-financial corporate sector contributed the most to the deleveraging process in 2021, with a total decline of 7.5 percentage points for the year, while tighter bank liquidity was an important factor, according to the report.In addition, the continuous reduction of shadow banking scale under strict supervision also promoted the reduction of leverage ratio of non-financial sectors.China Business News has learned that China’s monetary policy is now focused on stabilizing growth, and it is expected to increase the total easing of monetary policy, further strengthen the support for non-financial enterprises, liquidity will stabilize and loosen, and the financing cost of enterprises has decreased.This year, non-financial corporate leverage is likely to stabilize.The leverage ratio of the non-financial corporate sector will drop by 7.5 percentage points in 2021, from 162.3 percent at the end of 2020 to 154.8 percent, down 0.9, 2.6, 1.6 and 2.4 percentage points in four quarters, respectively, according to the report.The trend of corporate deleveraging is very obvious, with leverage ratio falling more in the second half than in the first.In 2020, the leverage ratio of China’s non-financial enterprises increased by 10.4 percentage points due to the impact of the epidemic, and most of the increase has already been absorbed by 2021.By comparison, non-financial corporate leverage is now only 2.9 percentage points higher than it was at the end of 2019.Reporters learned that 2021 as a whole, monetary policy is tight.Corporate loan rates and bill financing rates both rose in the first quarter, and the temporary relaxation policies introduced in 2020 to deal with the epidemic were basically withdrawn. The credit growth in the first half of the year basically returned to normal.In 2021, the excess reserve ratio of banks and other financial institutions has dropped to a historically low position, with the excess reserve ratio of financial institutions dropping to 2.00% at the end of the year and the excess reserve ratio of commercial banks dropping to 2.05%. Especially, the excess reserve ratio at the end of the second quarter reached the lowest point.Zhao Xijun, co-dean of the China Capital Market Research Institute at Renmin University of China, told reporters: “In 2021, the leverage ratio of the non-financial sector will see the biggest reduction, for many reasons.On the one hand, bank liquidity contraction, supply is not as sufficient as 2020, began to turn;On the other hand, companies’ willingness to invest is limited.”The central Bank’s monetary policy implementation report for the fourth quarter of 2021 shows that China’s monetary policy adheres to a prudent orientation, does not engage in “flooding”, and adheres to the implementation of normal monetary policy. After May 2020, the monetary policy gradually turns to normal. Since 2021, it has maintained forward-looking, continuity and stability, and intensified cross-cycle adjustment.On a two-year average, M2 and social financing will grow by 9.5% and 11.8% respectively from 2020 to 2021, basically matching and slightly higher than the average nominal economic growth of the two years.Thanks to this, China’s non-financial sector debt growth is relatively restrained and controllable.As the downward pressure on the economy increased, the CENTRAL bank eased somewhat in the second half of 2021, but the supply of interbank funds remained basically stable, with two RRR cuts in July and December 2021.In addition, lending rates also declined in the second half of 2021, according to the report.In 2021, the interest rate of corporate loans was 4.61%, while in the fourth quarter, it has been reduced to 4.57%. The annual interest rate is a process of first rising and then falling.The interest rate of bill financing decreased significantly, from 3.1% in the fourth quarter of 2020 to 2.18% in the fourth quarter of 2021. An important reason for the decline of bill interest rate lies in the limited financing demand of enterprises, and some commercial banks can only complete the credit delivery task through bill loans.Liu Guoqiang, deputy governor of the People’s Bank of China, publicly stated in early 2022 that “the current key goal is’ stability ‘, and the policy requirement is to use sufficient force, including sufficient force, to open the monetary policy toolbox to a larger extent, maintain the stability of aggregate and avoid credit collapse.”In practice, the one-year LPR rate dropped from 3.85 percent to 3.8 percent in December 2021 for the first time in a year and a half, followed by another drop to 3.7 percent on January 20, 2022. The cost of corporate financing will also decrease.The report predicts that monetary policy easing will be intensified in 2022, and support for non-financial enterprises will be further strengthened.Li Peijia, a senior researcher at the Bank of China Research Institute, said: “The Chinese economy is facing triple pressures of demand contraction, supply shock and weakening expectations.In this context, monetary policy should take stable growth as the important direction, and liquidity will stabilize and become loose. Non-financial enterprises’ leverage ratio funds mainly come from bank credit, various non-bank financial institutions, market funds and overseas bonds. Loose liquidity will promote the increase of bank credit scale.However, bond issuance, especially overseas bond issuance, has seen a significant increase in capital difficulties. Overall, the leverage ratio of non-financial enterprises in 2022 May change the situation of a large decline last year and present a stable state.”China Merchants Securities Research News believes that the excessive development of the shadow banking system was behind the sharp increase in the leverage ratio of non-financial enterprises in 2016.Corporate deleveraging actually depends on financial deleveraging, especially cleaning up shadow banking and controlling excessive intermediate links in the financial system.So far, the continuous reduction of shadow banking scale in China is also one of the reasons for the reduction of leverage of non-financial enterprises.Off-balance-sheet financing — entrusted loans, trust loans and undiscounted bank acceptance bills — fell by a net 2.67 trillion yuan in 2021, 1.35 trillion yuan less than the previous year, according to the report.Since financial deleveraging began, shadow banking has been cut by more than 20 trillion yuan.The reporter learned that there are three main reasons for the drop in shadow banking pressure: First, the new rules on capital management imposed strong regulatory constraints on banks’ off-balance sheet business, which blocked the channels through shadow banking to provide credit funds to some restricted industries.Second, the central bank continues to innovate direct credit policy tools to promote direct bank credit without bypassing shadow banking.Third, strict restrictions on the implicit debt of local governments, and shadow banks are no longer allowed to provide implicit loans to local governments.In general, a large amount of off-balance sheet financing returned to the balance sheet, enhancing the stability of the financial system.From the perspective of supervision, the CBRC working Conference in 2022 proposed that in 2021, we will continue to prevent and defuse financial risks, and the scale of quasi-credit shadow banking will decrease by 4.2 trillion yuan compared with the beginning of the year. Regulators will continue to dismantle high-risk shadow banking and fully implement the new rules on capital management.”In the past few years, substantial progress has been made in supervising and regulating shadow banking, with the size of shadow banking reduced by more than 20 trillion yuan. Against this background, non-financial sector financing has shown a steady decline,” Li said.At present, under the background of strict regulation, the scale of shadow banking is likely to shrink further.”The report shows that the shadow banking pressure also has an impact on the leverage ratio of the financial sector.In fact, from 2011 to 2016, shadow banking played a larger role in credit, with net outflow of funds from commercial banks to shadow banking, and the financial leverage ratio of asset side was significantly higher than that of liability side.After 2018, the new capital management regulations began to be strictly implemented, and the financial leverage ratio decreased.Since the liquidation of financial leverage mainly starts from the decline of shadow banking scale, the financial leverage ratio of asset side has a large decline range.In terms of data, the financial leverage ratio of asset side decreased by 5.3 percentage points in 2021, from 54.2% at the end of 2020 to 48.9%.The financial leverage ratio measured by debtors remained unchanged at 62.7%.Zhao Xijun told reporters: “According to the financial data statistics report published on the central bank’s website in January, the new RMB loans were 3.98 trillion yuan, and the increase of 1.13 trillion yuan last month was large.If there are no big anomalies thereafter, financial sector leverage may increase this year.”