【Abstract】In 2023, the growth rate of M1 and M2 will diverge significantly, the gap between the year-on-year growth rate of social finance and M2 will continue to narrow, the growth rate of the scale of capital will stabilize and rebound, and the elephant of the large state-owned banks will dance, continuing to widen the distance between the growth rate of the scale of the joint-stock banks. The balance of RMB loans was 237.59 trillion yuan, a year-on-year increase of 10.6%, the medium and long-term loans to residents continued to be weak, the growth of loans to enterprises and institutions remained high, and the growth rate of bill financing slowed down. The balance of RMB deposits was 284.26 trillion yuan, a year-on-year increase of 10%, and the growth rate was 1.3 percentage points lower than that of the previous year. The overall profit growth rate increased, the net interest margin continued to narrow, the overall operating efficiency declined, the non-performing ratio was stable overall, the asset adequacy ratio stopped falling and rebounded, and the provision coverage ratio maintained a growth trend. In terms of policy, the Central Financial Work Conference has made comprehensive arrangements for financial work in the coming period, promoted the introduction of important and detailed policies one after another, and promoted the optimization of the operating structure of the banking industry; monetary policy has continued to increase counter-cyclical adjustment, and the overall policy is stable and loose; the financial regulatory system has continued to improve, and the level of financial risk prevention and control has been continuously improved; and regional policies have been implemented one after another, helping the banking industry to open up to the outside world at a high level. Looking forward to 2024, the overall tone of monetary policy will remain stable, liquidity will be reasonable and abundant, and the total amount of social finance credit will grow moderately, the interest rate in the money market will decline steadily, and the interest rate on deposits and loans may decline structurally; the consumer finance business will continue to recover, and the corporate business will continue to strengthen key areas, and the gold market business needs to do a good job in forward-looking research and judgment; revenue growth is sluggish, and profit growth is still under great pressure; The main tone of detailed supervision remains unchanged, regulatory legislation may be introduced, risk prevention and control challenges still exist, and the construction of an intelligent risk control system is accelerating.
1. Development review
(1) The growth rate of M1 and M2 diverged significantly, and the gap between the year-on-year growth rate of social finance and M2 continued to narrow
The growth rate of social finance has declined as a whole. At the end of 2023, the stock of social financing scale will be 378.09 trillion yuan, a year-on-year increase of 9.5%, and the growth rate will decrease by 0.1 percentage points at the beginning of the year. The growth rate of M1 and M2 diverged significantly, the balance of broad money supply (M2) at the end of December was 292.27 trillion yuan, a year-on-year increase of 9.7%, the year-on-year growth rate of narrow money supply (M1) was lower than 2% for three consecutive months, and the difference between the year-on-year growth rate of M1 and M2 increased from 5.9% at the end of January to 8.4% at the end of December, mainly due to the cold real estate sales, poor business management, Financing willingness and limited access have led to a decrease in corporate demand deposits, while market expectations are weak, confidence in the real sector still needs to be boosted, money storage demand is high, and the velocity of circulation is low. The gap between the year-on-year growth rate of social finance and M2 continued to narrow, and the scissors gap between the growth rate of social finance and M2 continued to narrow from 3.2% at the beginning of the year to 0.2% at the end of December, reflecting the easing of the gap between the supply and demand of mainland money in 2023 and the further balance of currency supply and demand.
There is a significant divergence between the growth rates of M1 and M2
The supply and demand of money gradually tended to be balanced
(2) The growth rate of the scale of capital burden stabilized and rebounded, the elephants of large state-owned banks danced, the medium and long-term loans of residents continued to be weak, the growth of loans to enterprises and institutions remained at a high level, the growth of household deposits was relatively fast, and the growth rate of financial deposits continued to pick up
The growth rate of asset scale stabilized and rebounded, and the elephants of large state-owned banks danced, further widening the distance between them and the growth rate of joint-stock banks. As of the end of December, the total domestic assets of commercial banks reached 347.49 trillion yuan, a year-on-year increase of 11.1% and an increase of 0.1 percentage points from the beginning of the year. It can also be seen from the figure below that since 2023, the gap between the asset growth rate of large state-owned banks and joint-stock banks has shown a widening trend as a whole, the asset growth rate of large state-owned banks has shown a trend of stabilization and recovery, and is in a high-speed growth, the growth rate of total assets of joint-stock banks is at a low level, and the growth rate of assets of urban commercial banks has shown a further expansion trend as a whole, but the growth rate of asset scale has dropped sharply to 10.66% in December, and the asset growth rate of rural commercial banks has continued to decline as a whole, and the growth rate of asset scale has increased in December.
Since 2023, the growth rate of commercial banks' assets has slowed down as a whole
The growth rate of RMB loans continued to decline, the medium and long-term loans of residents continued to weaken, the growth of loans to enterprises (institutions) remained high, and the growth rate of bill financing slowed down. At the end of 2023, the balance of RMB loans was 237.59 trillion yuan, a year-on-year increase of 10.6%, and the growth rate decreased by 0.5 percentage points from the beginning of the year. In terms of sub-sectors, the balance of short-term loans to residents was 20.7 trillion yuan, with a year-on-year growth rate of 12.53%, 6.3 percentage points higher than the beginning of the year, reflecting the significant recovery of residents' consumption in 2023 with the dissipation of the epidemic, and the short-term and medium- and long-term loans of enterprises (institutions) increased by 10.93% and 15.91% year-on-year respectively, an increase of 1.37 and 1.18 percentage points respectively from the beginning of the year. The growth rate of bill financing was 2.66%, a sharp decrease of 27.36 percentage points from the beginning of the year. In terms of new additions, RMB loans will increase by 22.75 trillion yuan in 2023, an increase of 1.31 trillion yuan year-on-year. Household loans increased by 4.33 trillion yuan, of which short-term loans increased by 1.78 trillion yuan, medium- and long-term loans increased by 2.55 trillion yuan, loans to enterprises (institutions) increased by 17.91 trillion yuan, of which short-term loans increased by 3.92 trillion yuan, medium- and long-term loans increased by 13.57 trillion yuan, bill financing increased by 341 billion yuan, and loans to non-banking financial institutions increased by 192.8 billion yuan.
Residents' short-term loans picked up
Medium and long-term loans to enterprises (institutions) increased rapidly
The growth rate of bill financing declined
Financial services in key areas and weak links have been continuously strengthened. In terms of inclusive small and micro enterprises and agriculture-related, as of the end of 2023, inclusive small and micro enterprise loans increased by 23.5% year-on-year, down 0.3 percentage points from the beginning of the year, and agriculture-related loans increased by 14.9% year-on-year, an increase of 0.9 percentage points from the beginning of the year. 1,585 billion yuan and 524.5 billion yuan, providing a total of 52.6 billion yuan of incentive funds for local corporate financial institutions, and supporting them to increase inclusive small and micro loans totaling 2,868 billion yuan. In terms of green credit, green credit increased by 36.5% year-on-year, and as of the end of November, the balance of carbon emission reduction support tools was 491.1 billion yuan, with a total of 1,019.4 billion yuan of loans issued by financial institutions to meet the requirements in areas such as carbon emission reduction, 269.5 billion yuan of special re-loans to support clean and efficient use of coal, and a total of 290.3 billion yuan of loans issued by financial institutions to meet the requirements of clean and efficient use of coal. In terms of real estate loans, as of the end of 2023, real estate loans decreased by 1% year-on-year, down 2.5 percentage points from the beginning of the year, of which personal home loans decreased by 1.6% year-on-year, and the interest rate on newly issued personal housing loans from January to November 2023 was 4.1% , down 0.8 percentage points year-on-year, the creation of a 100 billion yuan rental housing loan support plan, the continuation of the implementation of the 200 billion yuan guaranteed delivery loan support plan until May 2024, the new mortgage supplementary loan amount of 500 billion yuan, for policy development banks to issue "three major projects" construction project loans to provide medium and long-term low-cost financial support.
Inclusive, green and agriculture-related loans grew rapidly
The growth rate of real estate loans was negative
The growth rate of total liabilities of commercial banks stabilized and rebounded, the growth rate of total liabilities of large state-owned banks and urban commercial banks showed an accelerated trend, and the growth rate of total liabilities of joint-stock banks and rural commercial banks was running at a low level. At the end of 2023, the total liabilities of commercial banks were 320.05 trillion yuan, a year-on-year increase of 11.26%, a decrease of 0.1 percentage points from the beginning of the year, of which large state-owned banks, joint-stock banks, urban commercial banks, and rural commercial banks increased by 13.36%, 6.91%, 11.94%, and 8.65% year-on-year respectively, with changes of -0.59 percentage points, +0.17 percentage points, and +0.9 percentage points respectively from the beginning of the year. At 1.37 percentage points, the growth rate of total liabilities of large state-owned banks increased significantly in the fourth quarter, while the growth rate of joint-stock banks was still at a low level, and the gap between the growth rate of liabilities of large state-owned banks and joint-stock banks showed a widening trend.
Large state-owned banks and joint-stock banks
The gap in debt growth is widening
The growth rate of RMB deposits showed a downward trend, household deposits grew rapidly, the growth rate of fiscal deposits continued to pick up, and the growth rate of deposits of non-banking financial institutions stabilized and rebounded. At the end of 2023, the balance of RMB deposits was 284.26 trillion yuan, up 10% year-on-year and down 1.3 percentage points from the beginning of the year, of which household deposits grew at a higher rate of 13.84% year-on-year, down 3.57 percentage points from the beginning of the year, deposits of non-financial enterprises increased by 5.52% year-on-year, down 1.64 percentage points from the beginning of the year, and government financial deposits increased by 15.84% year-on-year, a significant increase of 16.59 percentage points from the beginning of the year.
The growth rate of household deposits slowed slightly
The growth rate of fiscal deposits continued to increase
From the perspective of deposit increment, the trend of fixed-term deposits of residents continues, and the activation of corporate deposits is insufficient. RMB deposits increased by 25.74 trillion yuan, a year-on-year decrease of 510.1 billion yuan. Among them, household deposits increased by 16.67 trillion yuan, a year-on-year decrease of 1.17 trillion yuan, and the cumulative increase in deposits of non-financial enterprises in the first 10 months was 3.55 trillion yuan, a year-on-year decrease of 1.16 trillion yuan, of which demand deposits decreased by 1.06 trillion yuan, a year-on-year decrease of 713.2 billion yuan, reflecting the insufficient degree of capital activation of enterprises and the weak willingness to expand reproduction.
(3) The overall profit growth rate increased, the net interest margin continued to narrow, and the overall operating efficiency declined
In the first three quarters of 2023, commercial banks achieved a total net profit of 1.86 trillion yuan, a year-on-year increase of 9%, 7.73 percentage points higher than the growth rate of the same period in 2022, the largest year-on-year growth rate since the first quarter of 2022; and the improvement of the non-performing rate, and the net profit increased by 164.6%.
The overall increase in profits and the recovery of the growth rate of rural commercial banks
Net interest margins continued to narrow. At the end of the third quarter of 2023, the net interest margin of commercial banks was 1.725%, a decrease of 18.9bp from the beginning of the year, of which large state-owned banks, joint-stock banks, urban commercial banks, and rural commercial banks decreased by 23.5bp, 17.9bp, 6.7bp, and 20.9bp respectively.
Net interest margin levels continued to narrow
Operational efficiency declined overall. In the first three quarters of 2023, the ROA of commercial banks was 0.74%, down 0.015 percentage points from the previous year. The ROA of large state-owned banks and joint-stock banks decreased by 0.074 and 0.013 percentage points respectively from the previous year, while urban commercial banks and rural commercial banks increased by 0.076 and 0.094 percentage points respectively from the previous year. In the first three quarters of 2023, the ROE of commercial banks was 9.45%, an increase of 0.12 percentage points from the previous year.
Sequential decrease in operating efficiency
(4) The non-performing ratio of commercial banks has been stable and declining, the capital adequacy ratio has stopped falling and rebounded, and the provision coverage ratio has maintained an overall growth trend
The non-performing ratio of commercial banks has been stable and declining. At the end of the third quarter of 2023, the non-performing loan ratio of commercial banks was 1.61%, a decrease of 2.3bp from the beginning of the year, and the non-performing loan ratios of large state-owned banks, joint-stock banks, urban commercial banks and rural commercial banks were 1.27%, 1.30%, 1.91% and 3.18% respectively, while the non-performing loan ratios of large state-owned banks, joint-stock banks and rural commercial banks decreased by 4.7bp, 2.3bp and 3.5bp respectively from the beginning of the year, and urban commercial banks increased by 6.5bp from the beginning of the year.
The non-performing ratio of commercial banks has been stable and declining
The capital adequacy ratio stopped falling and rebounded. At the end of the third quarter of 2023, the capital adequacy ratio of commercial banks was 14.77%, down 39.8bp from the beginning of the year. In terms of sub-sectors, the capital adequacy ratios of large state-owned banks, urban commercial banks, joint-stock banks, and rural commercial banks decreased by 66.4bp, 34.7bp, 7.7bp, and 30.1bp respectively from the beginning of the year, but there was a trend of stopping the decline and rebounding quarterly.
The asset adequacy ratio stopped falling and rebounded
The provision coverage ratio maintained an overall growth trend. At the end of the third quarter of 2023, the provision coverage ratio of commercial banks was 207.89%, an increase of 2.04 percentage points from the beginning of the year, and the ability to offset risks remained stable. In terms of sub-sectors, the provision coverage ratios of large state-owned banks, joint-stock banks, urban commercial banks and rural commercial banks were 251.3%, 219.4%, 186.1% and 142.9% respectively, with changes of 6.3%, 5.2%, -5.6% and -0.3% respectively from the beginning of the year.
The provision coverage ratio maintained an overall growth trend
2. Policy review
Since 2023, banking financial institutions have conscientiously implemented the spirit of the 20th National Congress of the Communist Party of China, the Central Financial Work Conference and the Central Economic Work Conference, fully supported the stabilization of the macroeconomic market, and effectively prevented and resolved systemic financial risks. In the first three quarters, financial policies continued to support reform, prevent risks, make up for shortcomings, promote development, and protect people's livelihood, and guided the banking industry to continue to improve the quality and efficiency of serving the real economy. In terms of reform, on March 16, the "Party and State Institutions Reform Plan" made major reform and adjustment to the regulatory framework of the financial industry, on May 18, the State Administration of Financial Supervision was officially unveiled, and on July 20, the State Administration of Financial Supervision was listed at the provincial and municipal levels to promote the full coverage of financial supervision. In terms of risk prevention, the Measures for the Risk Classification of Financial Assets of Commercial Banks and the Measures for the Management of Operational Risks of Banking and Insurance Institutions (Draft for Comments) have been promulgated one after another. In terms of making up for shortcomings, policies such as the "Notice on Further Improving the Pilot Work of Joint Credit" and the "Notice on Strengthening the Quality of Financial Services for Small and Micro Enterprises in 2023" have been issued one after another. In terms of promoting development, policies to promote economic development, such as the Notice on Further Improving Financial Support and Services in the Field of Transportation and Logistics, and the Notice on Comprehensively Promoting the Key Work of Rural Revitalization in the Banking and Insurance Industries in 2023, have been implemented one after another. In terms of protecting people's livelihood, the People's Bank of China (PBOC) and the State Administration of Financial Supervision (SAMR) issued important policy documents such as the Announcement on the Working Arrangements for Handling Matters Reported by Financial Consumers, the Notice on Adjusting and Optimizing the Differentiated Housing Credit Policy, and the Notice on Matters Concerning the Reduction of Interest Rates on the First Housing Loan in Stock. In terms of regional policies, major regional policies such as the Opinions on Financial Support for the Development of the Guangdong-Macao In-Depth Cooperation Zone in Hengqin, the Opinions on Financial Support for the Comprehensive Deepening of Reform and Opening-up in the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone, and the Interim Measures for the Administration of Cooperation in the Interconnection of Interest Rate Swap Markets between the Mainland and Hong Kong have been implemented. In the fourth quarter of 2023, financial regulatory measures or management measures such as the Measures for the Management of Capital of Commercial Banks, the Measures for the Prevention and Control of Risk in Criminal Cases of Banking and Insurance Institutions, the Notice on the Tax Policies for the Import and Export of Goods in the Guangdong-Macao In-Depth Cooperation Zone in Hengqin, the Notice on Strengthening the Financial Services for the Whole Life Cycle of Technology-based Enterprises, the Opinions on Comprehensively Promoting the Construction of a Beautiful China, and the Opinions on Developing the Silver Economy and Improving the Well-being of the Elderly were promulgated one after another, effectively safeguarding and promoting the sound operation of the banking industry.
(1) The "five articles" detailed policies have been introduced one after another to promote the optimization of the operating structure of the banking industry
The Central Financial Work Conference held on October 30, 2023 pointed out that efforts should be made to create a good monetary and financial environment, effectively strengthen high-quality financial services for major strategies, major areas and weak links, and do a good job in the "five articles" of science and technology finance, green finance, inclusive finance, pension finance and digital finance. After the meeting, relevant detailed policies were introduced one after another. In terms of science and technology finance, the State Administration of Financial Supervision issued the Notice on Strengthening the Financial Services of the Whole Life Cycle of Science and Technology Enterprises on January 12, 2024, which puts forward detailed requirements for doing a good job in science and technology financial services from the aspects of continuously deepening the construction of the management mechanism of science and technology finance organizations, forming full life cycle financial services for science and technology enterprises, doing a solid job in financial risk prevention and control, and strengthening organizational guarantees and policy coordination. Commercial banks should focus more on the field of science and technology finance, and continue to make efforts to serve the high-quality development of science and technology enterprises, help the manufacturing industry, and support the development of strategic priorities and emerging industries, so as to help serve the development of science and technology innovation. In terms of green finance, the CPC Central Committee and the State Council issued the "Opinions on Comprehensively Promoting the Construction of a Beautiful China" on December 27, 2023, which put forward 33 opinions on eight aspects, including accelerating the green transformation of the development mode, continuing to promote pollution prevention and control, improving the diversity and stability of the ecosystem, guarding the safety bottom line of the construction of a beautiful China, creating a demonstration model for the construction of a beautiful China, carrying out the national action for the construction of a beautiful China, improving the guarantee system for the construction of a beautiful China, and strengthening the overall leadership of the party. Commercial banks should focus on green economy, pollution prevention and control, strengthen the marketing of clean energy, green buildings, energy conservation and environmental protection projects, actively use the central bank's carbon emission reduction support tools, and gradually increase the proportion of green credit business in new loans. In terms of pension finance, the General Office of the State Council issued the "Opinions on Developing the Silver Economy and Improving the Well-being of the Elderly" on January 15, 2024, proposing 26 measures in four aspects, including developing people's livelihood undertakings, expanding product supply, focusing on diversified needs, and strengthening factor guarantees. Commercial banks should provide richer and more diversified financial services around financial services for the elderly and the development of the silver economy, so as to better meet the multi-level and diversified needs of the elderly and promote the development and growth of the silver economy.
(2) Monetary policy continued to increase counter-cyclical adjustment, and the overall stability was loose
In 2023, the mainland economy is still in the process of recovery, domestic credit demand has slowed down, it will be more difficult to provide loans in a stable and sustainable manner, and the challenges of stabilizing money and credit will increase. The central bank has made great efforts to support the expansion of domestic demand, prudent monetary policy is precise and powerful, increased counter-cyclical adjustment, and coordinated the use of aggregate and structural, quantitative and price tools such as RRR cuts, interest rate cuts, structural monetary policy tools, and open market operations, so as to strongly support the stabilization of the macroeconomic market. First, the aggregate policy will increase counter-cyclical adjustment, maintain reasonable and abundant liquidity, and enhance the stability and sustainability of total credit growth. Conduct open market operations flexibly and vigorously. As of November 24, the central bank has carried out reverse repurchase operations in the open market in a timely manner, hedged the impact of factors such as government bond issuance, tax payment, payment approval, and quarter-end regulatory assessment, and maintained reasonable and sufficient liquidity in the banking system, and as of November 24, the central bank has carried out reverse repurchase operations of more than 34 trillion yuan during the year. At the end of the third quarter, the excess reserve ratio of financial institutions was 1.4%, unchanged from the same period last year. The medium-term lending facility (MLF) will be renewed in excess of the monthly maturity to ensure a reasonable supply of medium and long-term liquidity. Since 2023, the central bank has normalized the monthly excess MLF, and the MLF balance at the end of December was 7.07 trillion yuan, an increase of 2.53 trillion yuan or 55.5% from the beginning of the year. Second, the price-based policy has improved the formation and transmission mechanism of market-oriented interest rates, and the policy interest rate has been lowered twice, driving the LPR interest rate to continue to decline. As of the end of November, the winning interest rates of OMO (open market operation) and MLF (medium-term lending facility) were 1.8% and 2.5% respectively, down 20BP and 25BP from the beginning of the year, driving the LPR of more than 1 year and 5 years to fall by 20BP and 10BP to the low levels of 3.45% and 4.2% respectively. Among them, the decline of LPR of more than 5 years is smaller, especially in August, which did not follow the MLF interest rate reduction, mainly because of the need to coordinate the relationship between stock and incremental interest rates. Third, the structural monetary policy tools are focused, reasonable and moderate, and there are advances and retreats, so as to promote the optimization of the credit structure. In the fourth quarter, the phased monetary policy tools continued to exert force, gave full play to the guiding effect of credit policies, continued to make good use of the structural monetary policy tools during the implementation period, increased precise drip irrigation for inclusive finance, scientific and technological innovation, and green development, and increased financial support for the transformation of urban villages, dual-use infrastructure for ordinary and emergency purposes, and affordable housing, so as to help stabilize consumption, investment and the macroeconomic market.
(3) The active fiscal policy has been strengthened to improve efficiency and tilt more towards the field of people's livelihood
In 2023, the fiscal policy will generally implement the principle of "strengthening efficiency, focusing on precision and sustainability", and in the case of limited income growth, especially negative growth in land transfer income, it will still ensure a certain expenditure intensity to promote economic growth, prevent and resolve risks, and the tight balance situation has intensified. On the revenue side, the tax and fee reductions highlight the support for scientific and technological innovation enterprises and small, medium and micro enterprises, while optimizing preferential tax policies to promote consumption, the structure of the expenditure side has been continuously optimized, tilting towards the areas of people's livelihood shortcomings, and the central government has issued additional trillions of national bonds to transfer to local governments to ensure the sustainability of local finances and the controllable risk of local government debt. Finance has played a major role in supporting economic recovery and development, stabilizing employment, improving people's livelihood, promoting scientific and technological innovation, and preventing major risks. In 2023, fiscal revenue will increase rapidly year-on-year, and the national general public budget revenue in the first 10 months will be 18.75 trillion yuan, a year-on-year increase of 8.1%, an increase of 12.6 percentage points over the same period in 2022, mainly due to the implementation of the large-scale VAT refund policy in April 2022, more centralized tax refunds, and lower the base, and the relevant tax refunds will return to normal in 2023. The pace of local government bond issuance has accelerated, and infrastructure and people's livelihood are the main capital investment areas of local government bonds. Since 2023, the infrastructure of urban and rural municipal industrial parks, transportation infrastructure construction, and livelihood services have been the main investment directions of local government special bonds, accounting for 30.25%, 17.93%, and 14.31% respectively. In the first 10 months of 2023, the total expenditure on education, social security and employment, and health reached 8.35 trillion yuan, accounting for 38.7% of public financial expenditure, a new high in the same period in recent years, and the cumulative year-on-year growth rate of people's livelihood-related expenditure reached 6.0%, 1.4 percentage points higher than the overall growth rate.
(4) The financial regulatory system has been continuously improved, and the level of risk control has been continuously improved
Since the fourth quarter, the State Administration of Financial Supervision has continued to focus on financial reform and prevention and control of financial risks, guiding the steady development of the banking industry.
The financial regulatory system continues to improve. On October 21, 2023, the "Report of the State Council on Financial Work" proposes to strengthen prudential supervision, deepen cross-departmental supervision and law enforcement cooperation, and severely crack down on financial crimes. The Central Financial Work Conference emphasized that it is necessary to effectively improve the effectiveness of financial supervision, bring all financial activities into supervision in accordance with the law, comprehensively strengthen institutional supervision, behavior supervision, functional supervision, penetrating supervision, and continuous supervision, eliminate regulatory gaps and blind spots, strictly enforce the law, dare to show the sword, and severely crack down on illegal financial activities. On November 1, the State Administration of Financial Supervision conveyed the spirit of the study meeting and emphasized: first, actively build a financial regulatory system with Chinese characteristics, promote the introduction of a series of institutional documents, accelerate the completion of system shortcomings, and comprehensively strengthen the "five major supervisions"; The second is to prevent and resolve the four major risks, deal with the risks of small and medium-sized financial institutions in a timely manner, establish a long-term mechanism for preventing and resolving local debt risks, and promote a virtuous cycle of finance and real estate; Combined with the "Party and State Institutions Reform Plan", it is expected that in the future, the regulatory authorities will comprehensively strengthen the "five major supervision" system guarantees, pay more attention to improving the professionalism, effectiveness and comprehensiveness of financial supervision, and urge finance to return to its tradition and origins.
Precise prevention and control measures have been introduced one after another. Around the Central Financial Work Conference. In terms of real estate, in early January 2024, the Ministry of Housing and Urban-Rural Development and the State Administration of Financial Supervision jointly issued the Notice on the Establishment of a Coordination Mechanism for Urban Real Estate Financing Financial institutions are required to meet the reasonable financing needs of high-quality projects, and for projects that encounter temporary difficulties in development and construction but can basically balance funds, they will not blindly draw loans, cut off loans, or pressure loans, accurately support the reasonable financing needs of real estate projects, and promote the stable and healthy development of the real estate market. In terms of risk management of small and medium-sized financial institutions, on January 25, 2024, Xiao Yuanqi, deputy director of the State Administration of Financial Supervision and Administration, pointed out at a press conference held by the Information Office of the State Council that the financial regulatory authorities will work closely with local party committees and governments and relevant departments to work together to do a good job in the reform and risk prevention and control of small and medium-sized banks, and continuously improve the operation and management level of small and medium-sized banksFourth, focus on the main responsibilities and main businesses of small and medium-sized banks; fifth, adhere to goal-oriented and problem-oriented, seek progress while maintaining stability, treat both the symptoms and the root causes, comprehensively strengthen supervision, and prevent and resolve risks.
The prevention and control of financial risks has been continuously strengthened. On November 1, the State Administration of Financial Supervision promulgated the Measures for the Management of Capital of Commercial Banks, which attached importance to the "two-handed" measurement and management, emphasizing that prudent system and effective management are the prerequisites for accurate risk measurement, providing positive incentives for banks to consolidate the foundation of operation and management and improve the level of management refinement, and the capital adequacy level of the banking industry was generally stable, with the average capital adequacy ratio rising steadily, and on November 10, the Administrative Measures for Risk Prevention and Control of Criminal Cases Involving Banking and Insurance Institutions was promulgated , clarifying the main tasks of banking and insurance institutions for risk prevention and control in criminal cases, emphasizing that banking and insurance institutions should establish and improve key systems for risk prevention and control in criminal cases, study and judge the key areas of risk prevention and control in criminal cases of their own institutions, improve key measures for risk prevention and control in criminal cases, strengthen the construction of informatization, and promptly carry out risk prevention and control assessments of criminal cases.
(5) Regional policies have been implemented one after another to help the banking industry open up to the outside world at a high level
Since the fourth quarter, regional policies, especially those of the Guangdong Free Trade Zone, have been implemented one after another, broadening the space for the banking industry to develop its business in the free trade zone. In order to implement the Master Plan for the Development of the Guangdong-Macao In-Depth Cooperation Zone in Hengqin and support the development and opening up of the Guangdong-Hong Kong-Macao In-Depth Cooperation Zone in Hengqin, on 4 January 2024, the Ministry of Finance and other three departments issued the Notice on the Tax Policies for the Import and Export of Goods in the Guangdong-Macao In-Depth Cooperation Zone in Hengqin, clarifying that the relationship between Hengqin and the Macao Special Administrative Region is the "first line", and the relationship between Hengqin and other areas within the customs territory of the People's Republic of China is set as the "second line" Compared with the current tax policy on the import of goods in the cooperation zone, the tax policy has been adjusted as follows: on the one hand, it will be adjusted from the "first-line" loan to the "first-line" liberalization, expand the scope of subjects and goods enjoying the tax-free or bonded policy, and promote the efficient and convenient flow of "first-line" goods. On the other hand, we will optimize and improve the "second-line" control policy, increase the tariff-free policy for processing value-added on the basis of the previous policy, encourage processing and manufacturing in the cooperation zone, and promote the moderate diversification of Macao's economy. For the banking industry, it is necessary to seize the opportunity of preferential tax policies, deepen the synergy and linkage with overseas institutions, improve the comprehensive cross-border financing and financial services in domestic and foreign currencies, participate in the construction of the cooperation zone with diversified funds, and use cross-border asset transfer, direct loans for wind ginseng, overseas payment and other products to reduce financing costs, support Guangdong and Macao in Hengqin to fully participate in and contribute to the construction of the "Belt and Road", and comprehensively serve Chinese enterprises to "go global".
On January 19, 2024, the Guangdong Provincial People's Government issued the "Strategic Action Plan for the Upgrading of the China (Guangdong) Pilot Free Trade Zone", focusing on improving the level of institutional opening-up, enhancing the new advantages of international trade competition, enhancing the level of financial opening up and innovation, improving the modernization level of the industrial chain, and enhancing the international competitiveness of the Guangdong-Hong Kong-Macao Greater Bay Area. 20 specific measures have been put forward in six aspects, including improving the radiation driving capacity. Commercial banks should seize the opportunity of upgrading the strategic deployment of the pilot free trade zone, focus on five major areas, including infrastructure and advanced manufacturing, technology finance, green finance, people's livelihood finance and wealth management, opening-up and cross-border finance, and support the expansion of functions and applications such as the integration of domestic and foreign currencies and free trade (FT) account systems, and the establishment of radiation-driven innovation and development self-creation zones, so as to give full play to the superimposed effect of the policies of the Guangdong-Hong Kong-Macao Greater Bay Area, effectively realize the integration of industry and finance, and promote the development of the real economy.
3. Outlook for 2024
The 2023 Central Economic Work Conference emphasized that in 2024, it is necessary to focus on promoting high-quality development, focus on expanding domestic demand, deepen reforms in key areas, lead the construction of a modern industrial system with scientific and technological innovation, expand high-level opening-up, promote urban-rural integration, and further promote the construction of ecological civilization and green and low-carbon development, so as to effectively protect and improve people's livelihood. The 2023 Central Financial Work Conference emphasized that at present and in the future, it is necessary to earnestly improve the effectiveness of financial supervision, effectively strengthen high-quality financial services for major strategies, key areas and weak links, and do a good job in five articles. Looking forward to 2024, the banking industry should actively grasp the "window period" of policies, focus on the "five articles" and financial risk prevention, carry out forward-looking research and in-depth interpretation of policies, and do a good job in serving the real economy, expanding domestic demand strategy, financial reform and innovation and other business layouts, and at the same time, actively respond to the challenges brought about by intensified interbank competition, real estate credit risk, local government debt risk and the external environment.
(1) Monetary policy was stable and loose, and social finance and credit maintained steady growth
Looking forward to 2024, the tone of monetary policy will be adjusted from "precise and powerful" in 2023 to "flexible, moderate, precise and effective", reflecting that the overall easing of monetary policy may be lower than that in 2023, and more attention will be paid to the actual effect of financial support for the real economy, and the efficiency of financial resources will be improved. The PBOC will coordinate the use of aggregate and structural, quantitative and price tools to create a favorable monetary and financial environment for high-quality economic development. In terms of social finance, first, the scale of social finance credit has maintained a moderate and steady growth, but the growth rate is expected to be stable and slow, and the central bank pointed out that in the next stage, it is necessary to maintain a reasonable growth in the scale of monetary credit and social financing. We should use a variety of monetary policy tools to maintain reasonable and abundant liquidity, and keep the growth rate of money supply and social financing basically matching the growth rate of the nominal economy. It is estimated that in 2024, the increase in social financing will be in the range of 35-36 trillion yuan, with a year-on-year growth rate of 9.3%-9.5%, and the increase in RMB loans is expected to be between 22.5-23 trillion yuan, with a growth rate of 9.5%-9.7%. The growth rate of M2 is expected to be around 9.1%-9.3%, and the scissors gap between "M2 and social finance" may be inverted. Second, the pace of credit issuance has become more stable, and the quarterly fluctuation of credit has further weakened. In 2024, the pace of credit delivery is likely to be more stable, and volatility will weaken. The pace of quarterly credit delivery may return to the average rhythm of 2018-2021, and the new increase in social finance and credit in the first quarter of 2024 may show a year-on-year decrease. Third, the credit structure continued to be optimized, and the investment of loans in major strategies, key areas and weak links was further deepened. With the deployment of the five articles of the Central Financial Work Conference on "Science and Technology Finance, Green Finance, Inclusive Finance, Pension Finance, and Digital Finance", it is expected that the growth rate of loans in key areas such as scientific and technological innovation, manufacturing, green development, and inclusive small and micro enterprises will further increase, the proportion of loans will further increase, and the downward trend of real estate loans will stabilize.
(2) Deposit and loan interest rates may be structurally downward, but the space is limited
Looking ahead to 2024, first, money market interest rates are expected to stabilize and fall, further moving closer to the policy rate. Under the guidance of the monetary policy to further unblock the interest rate system and the central bank to guide the money market interest rate to run smoothly around the policy rate, it is expected that the liquidity of the money market is expected to be marginally loose, and the money market interest rate will further move closer to the policy rate, thereby further reducing the cost of interbank liabilities of commercial banks. Second, deposit and loan interest rates are expected to remain structurally downward, but the downside is relatively narrow. Combined with the monetary policy implementation report for the third quarter of 2023, the central bank will improve the "market interest rate + central bank guidance→LPR → lending rate" and "LPR + treasury bond yield → deposit interest rate" On the one hand, we will continue to guide the effectiveness of LPR reform, enhance the guidance of LPR on real loan interest rates, promote the steady and moderate reduction of financing costs in the real economy, and standardize the pricing order of loan interest rates. On the other hand, financial institutions should be guided to reasonably determine the level of deposit interest rates according to changes in market interest rates, stabilize the cost of bank liabilities, and enhance the ability and sustainability to support the real economy. At the same time, under the policy guidance of maintaining the stability of interest rate spreads and enhancing the sustainability of financial services for the real economy, the central bank will continue to guide the deposit interest rate, especially the high-priced products such as time deposits and agreement deposits, to decline steadily.
(3) Consumer finance continues to recover, corporate business continues to strengthen support for key areas, and financial market business needs to do a good job of forward-looking research and judgment
In terms of retail finance, on the one hand, with the continuous recovery of residents' employment and income, residents' expectations and consumption tendencies continue to improve, and the installment consumption of durable consumer goods and education, culture and entertainment spending are expected to increase, on the other hand, economic uncertainty has led consumers to become more cautious in purchasing decisions. It is expected that consumer finance will continue to recover in 2024. Commercial banks should continue to innovate and enrich consumer finance scenarios, improve the convenience of consumer finance, actively tap the demand for consumer finance, and enhance financial support for residents' consumption.
In terms of corporate business, we closely followed the policy guidance, actively grasped policy opportunities, highlighted the development of science and technology innovation finance, green finance, inclusive finance, pension finance, and digital finance, and focused on five articles. First, science and technology finance will give more prominence to model innovation. The banking industry will continue to deepen the structural reform of the financial supply side, make up for the shortcomings of the development of the real economy of financial services, continuously upgrade the diversified relay comprehensive financial service model, provide financial service guarantee for technology-based enterprises, continue to promote the virtuous cycle of "science and technology, one industry and one finance", and help the implementation of forward-looking and strategic major national science and technology projects. Second, green finance will be more prominent in precise drip irrigation. Based on regional resource endowments and economic development needs, the banking industry will further explore innovative product and service models, continue to expand its influence in the field of ESG, provide targeted services in the fields of energy conservation and environmental protection, low-carbon transportation, and vigorously support the R&D, investment, promotion and application of clean energy, and make financial contributions to national energy security and carbon peaking. Third, inclusive finance will be more universal and beneficial to people's livelihood. The banking industry will continue to increase its support for micro, small and medium-sized enterprises and private enterprises, further alleviate the problem of difficult and expensive financing, increase inclusive financial innovation products and services, meet the all-round financial needs of citizens and new forms of employment, and promote common prosperity to a new level. Fourth, the demand for pension financial financing will become more diversified. The banking industry will actively innovate credit products and services suitable for the characteristics of the pension service industry, support the expansion of diversified financing channels conducive to the development of the pension service industry, strive to improve the financial service capacity and level of residents in the field of pension services, increase the financial services of the pension industry, health industry and silver economy, and continuously enrich the supply of pension financial products to better meet the increasingly diversified needs of pension finance. Fifth, the pace of digital financial transformation is accelerating. The banking industry will continue to implement the spirit of the Central Financial Work Conference, accelerate the pace of digital transformation, continue to inject digital thinking and digital elements into the financial service process, form financial service capabilities that are compatible with the digital era, and contribute to the development of the digital economy and the construction of a digital China.
On November 27, the central bank and other eight departments jointly issued the "Notice on Strengthening Financial Support Measures to Help the Development and Growth of the Private Economy", emphasizing the need to improve the convenience of counter business and the enthusiasm of participating institutions, facilitate more enterprises and residents to hold treasury bonds, and realize the diversification of treasury bond investment entities, which not only effectively guarantees the smooth issuance of government bonds, but also accelerates the development of direct financing. Treasury bond yields remain range-bound, with the moderate recovery of the economy, monetary policy needs to take into account stable growth and risk prevention, the task of debt is still heavy, the 10-year treasury bond yield is difficult to break the bottom range of about 2.6%, and the interest rate operation center is in the range of 2.6%-2.75%. The pressure of RMB exchange rate depreciation against the US dollar has eased, taking into account the difference between the economic fundamentals of the two countries, the difference in monetary policy, the balance of payments and other factors in the mainstream economy economy, interest rates, inflation and other factors in 2024, the RMB exchange rate against the US dollar is expected to continue a slight appreciation trend, and the RMB exchange rate against the US dollar will most likely show a two-way wide fluctuation trend. Gold prices continue to rise slightly, global central banks remain risk-averse, and it is possible to continue to buy gold, and gold prices still have room to rise in the 2024 cycle. The banking industry has strengthened its ability to predict the market of interest rate differentials between China and the United States and the trend of the RMB exchange rate, paid close attention to the fluctuations of the financial market, hedged risks in advance, reduced the degree of currency mismatch by improving the level of limit management and position management, avoided exchange rate risks, strengthened market research and customer in-depth cultivation, actively promoted product innovation, and sought structural business opportunities.
(4) Revenue growth is sluggish, and profit growth is still under great pressure
In terms of revenue, due to the slowdown in economic growth, asset repricing, and the downward trend in market interest rates, the growth momentum of bank revenue in the first half of 2024 will be insufficient. In terms of interest margins, affected by the interest rate guidance policy of the People's Bank of China in the previous period, interest margins may continue to narrow, and the effect of reducing the interest rate on the liability side is difficult to hedge against the downward impact of asset yields, and the growth rate of net interest income may further decline. In terms of mid-income income, the volatility of the capital market and weak economic expectations, the increase in investor risk aversion, the sharp decline in the mid-income of wealth management, and the continued implementation of the policy of fee reduction and interest concession in the banking industry, the growth of non-interest income was sluggish. In terms of net profit, due to sluggish revenue growth, net interest margin and non-performing pressure still exist, it is difficult to achieve substantial growth in net profit.
(5) The main tone of strong, strict and detailed supervision remains unchanged, and regulatory legislation may be introduced
The 2023 Central Financial Work Conference emphasized the need to comprehensively strengthen financial supervision, continuing the "strong supervision" policy tone of the Fifth National Financial Work Conference in 2017, and taking "comprehensively strengthening supervision, preventing and resolving risks" as the focus of financial work in the current and future periods, and highlighting "improving the effectiveness of financial supervision", which means that strong supervision, strict supervision, and detailed supervision are still the main tone of financial supervision in 2024, and new regulatory reform measures and legislation may continue to be implemented. Specifically reflected in the following three aspects: First, resolutely implement the requirements of strong supervision and strict supervision, and resolutely punish major violations of laws and regulations: severely crack down on illegal financial activities, the State Financial Supervision and Administration pointed out that the financial institutions access, daily supervision, withdrawal, inspection, administrative punishment and other regulatory functions are separated, and the establishment of regulatory agencies Supervision Department to coordinate the supervision of wealth management companies, trust companies, insurance asset management and other institutions, highlighting the "five major supervision" direction, combined with the "Party and State Institutions Reform Plan", it is expected that the regulatory authorities will be comprehensively strengthened in the future" Institutional supervision, behavior supervision, functional supervision, penetrating supervision, and continuous supervision" system guarantees, pay more attention to improving the professionalism, effectiveness and comprehensiveness of financial supervision, and urge finance to return to tradition and origin, shadow banking and other "pseudo-innovation" and "pseudo-innovation" businesses are difficult to survive. Second, institutional reform continues to advance and regulatory efficiency continues to be optimized: In the implementation of institutional reform and future specific supervision, there are still many details to be further clarified, including optimizing the cross-supervision of some businesses, clarifying the division of powers and responsibilities of specific departments, issuing clear rules to define market operation institutions, separating government, supervision and business, introducing authoritative specific operating procedures to guide the development of local supervision work, and implementing the optimization of regulatory strategies for financial consumers. In addition, the regulatory system under the leadership of the CPC Central Committee has comprehensively covered the macro and micro prudential supervision of finance, especially the regulatory responsibilities of the State Administration of Financial Supervision and Administration, which clearly covers emerging technology finance and pan-financial behaviors, forming a comprehensive financial supervision and effectively solving the problem of insufficient financial supervision. The third is to improve the market legal system and accelerate the elimination of regulatory gaps: It is expected that important documents including the Financial Stability Law may be issued in 2024, and the existing legal and regulatory system of financial supervision will be further improved in combination with the needs of financial business development, so as to promote the stable operation and high-quality development of the financial market.
(6) Challenges in risk prevention and control still exist, and the construction of an intelligent risk control system has accelerated
In 2024, asset quality control will further become an important issue for banks. With the continuous recovery of economic development, the credit status of market players will continue to improve, and the pressure on bank asset quality is expected to be alleviated in the long run, but special attention is still needed to prevent risks in key areas such as real estate, local bonds, and small and medium-sized financial institutions. In terms of retail and credit cards, the consumption behavior of different groups of consumers is quietly changing, and the retail and credit card business needs to strengthen information research and judgment, and make every effort to optimize the business while doing a good job in risk management in related fields. Since the implementation of the Notice on Further Promoting the Standardized and Healthy Development of Credit Card Business in 2022, superimposed by other internal and external factors, the issuance of cards in the mainland credit card industry has continued to be sluggish, the differentiation of credit card consumption transactions and overdraft amounts has intensified, some banks have experienced significant negative growth, and the non-performing rate of credit cards has also faced upward pressure, which has put forward urgent needs for card issuers to strengthen refined operations and game the stock era. In terms of geopolitical risks, there is great uncertainty about the impact of geopolitical situations such as the Russia-Ukraine conflict and the Palestinian-Israeli conflict, as well as the 2024 U.S. election on the global market. In order to improve the comprehensive risk management system, consolidate the main responsibilities of risk subjects, conduct comprehensive identification and assessment of various risks on a regular basis, and ensure the effective monitoring of credit risk, market risk, operational risk, liquidity risk, country risk, etc., the application of artificial intelligence technology will be further accelerated, and commercial banks are required to gradually realize real-time monitoring and quantitative analysis of various risks through the establishment of a sound risk management monitoring and evaluation system.
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Strategic Planning Department of China Guangfa Bank
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