The central bank announced a targeted RRR

In order to further promote the market-based legalization of "debt-to-equity swaps" and increase support for small and micro enterprises, the People's Bank of China decided to reduce the state-owned large commercial banks, joint-stock commercial banks, and postal savings banks from July 5, 2018. The ratio of RMB deposit reserve ratio of urban commercial banks, non-county rural commercial banks and foreign banks is 0.5 percentage points. Encourage five state-owned large commercial banks and 12 joint-stock commercial banks to use the targeted RRR cuts and funds raised from the market to implement the “debt-to-equity swap” project in accordance with the market-based pricing principle. Support the implementation of “debt-to-equity swap” to truly exercise shareholder rights, participate in corporate governance, and promote mixed ownership reform. Targeted RRR cuts do not support projects for “funded bonds” and “zombie companies”. At the same time, small and medium-sized banks such as the Postal Savings Bank, the City Commercial Bank, and the non-county farmer's bank should mainly use the RRR cuts for small and micro enterprise loans, and focus on alleviating the problem of financing difficulties for small and micro enterprises. The People's Bank of China will continue to implement a sound and neutral monetary policy in accordance with the unified arrangements of the Party Central Committee and the State Council, grasp the strength and rhythm of structural de-leverage, and create an appropriate monetary and financial environment for high-quality development and supply-side structural reform.

Five state-owned large commercial banks and 12 joint-stock commercial banks were encouraged to use targeted RRR cuts and funds raised from the market. ...[full text]
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In order to further alleviate the financing difficulties of small and micro enterprises, and continue to push the real economy to reduce costs, the central bank's targeted RRR cuts are expected to officially fall. ...[full text]
Small survey
Central bank interpretation

  1. What is the specific content of this targeted reduction and support for market-based legalization of “debt-to-equity swaps” and small and micro enterprise financing?

A: There are two main aspects of this targeted RRR reduction. First, since July 5, 2018, 12 major state-owned commercial banks, CITIC Bank and China Everbright Bank, including ICBC, Agricultural Bank, Bank of China, China Construction Bank and Bank of Communications, have been downgraded. The RMB deposit reserve ratio of joint-stock commercial banks is 0.5 percentage points, and the release of funds is about 500 billion yuan. It is used to support the market-based legalization of “debt-to-equity swap” projects, while inciting the participation of social funds of the same scale. Relevant banks should establish a ledger and record in detail the implementation of the market-based legalization of “debt-to-equity swaps” and report them to the relevant departments of the People's Bank and other quarterly reports. The second is to simultaneously reduce the RMB deposit reserve ratio of the Postal Savings Bank, the city commercial bank, the non-county rural commercial bank, and the foreign bank by 0.5 percentage points, and release the capital of about 200 billion yuan, mainly to support the relevant banks to explore the small and micro enterprise market and issue Small and micro enterprise loans will further alleviate the problem of financing difficult financing for small and micro enterprises. The use of RRR cuts by financial institutions to support “debt-to-equity swaps” and small and micro enterprise financing will be included in the macro-prudential assessment of the People’s Bank of China.

 2. What are the main considerations for this targeted RRR cut to support the market-based legalization of “debt-to-equity swaps” and small and micro enterprise financing?

A: The targeted RRR cut is to implement the relevant arrangements for the State Council executive meeting on June 20. Since the beginning of this year, the market-based legalization of “debt-to-equity swap” and the amount of funds in progress have been slow. Considering that state-owned large commercial banks and joint-stock commercial banks are the main force of market-based legalization of “debt-to-equity swaps”, they can Release a certain amount of long-term funds with appropriate costs, form a positive incentive, improve its ability to implement “debt-to-equity swaps”, and speed up the signing of “debt-to-equity swaps”. At the same time, the current problem of financing difficult financing for small and micro enterprises in China is still outstanding. Postal Savings Bank, City Commercial Bank, and non-County Agricultural Commercial Bank play an important role in supporting small and micro enterprises. The implementation of targeted RRR reduction is conducive to enhancing the supply capacity of small and micro credit, increasing the lending of small and micro enterprises, and reducing Xiaowei. Corporate finance costs, improve financial services for small and micro enterprises. In general, this targeted RRR cut is conducive to the steady advancement of structural de-leverage, which is conducive to increasing support for weak links such as small and micro enterprises, and belongs to directional regulation and precise regulation. The People's Bank of China will continue to implement a sound and neutral monetary policy to create a suitable monetary and financial environment for high-quality development and supply-side structural reform.

 3. What conditions should be met for the “debt-to-equity swap” project supported by targeted RRR cuts?

A: The People's Bank of China encourages 17 large and medium-sized commercial banks to use targeted RRR cuts to support the “debt-to-equity swap” project that fully reflects the principles of marketization and rule of law. The following items need to be noted: First, the implementation of the main body in the “debt” In the “transfer of shares” project, real equity investment should be realized, instead of “debt-to-debt”, which is still for the purpose of obtaining fixed income, that is, projects that do not support “funds and real bonds”; second, encourage relevant banks and The implementing entity shall mobilize social funds to participate in the “debt-to-equity swap” project at a ratio of not less than 1:1; third, the relevant shares of the “debt-to-equity swap” and related debt write-downs shall strictly follow market-oriented pricing, and shall be subject to the project in accordance with laws and regulations. Relevant participants negotiated and determined; Fourth, support all types of ownership enterprises to carry out market-based legalization of “debt-to-equity swaps”, and relevant implementation entities should truly participate in corporate governance of “debt-to-equity swaps” and promote their corporate governance. Promote the reform of mixed ownership; Fifth, the implementation of the "debt-to-equity swap" project should be conducive to improving the asset and liability structure of enterprises and restoring the kinetic energy of enterprise development.

Market interpretation
Central Bank: release of 700 billion yuan to support "debt-equity swaps" and small and micro enterprises

The relevant person in charge of the central bank said that the targeted RRR cut has two aspects: First, since July 5, the five state-owned large commercial banks and 12 joint-stock commercial banks have been reduced by 0.5 percentage points, which can be released. The capital is about 500 billion yuan, which is used to support the market-oriented legalization of debt-to-equity swap projects. ...[Details]

The relevant person in charge of the central bank answered the question of supporting the market-based legalization of "debt-equity swap" and small and micro enterprise financing

The targeted RRR cut is to implement the relevant arrangements for the State Council executive meeting on June 20. Since the beginning of this year, the market-based legalization of “debt-to-equity swap” and the amount of funds in progress have been slow. Considering that state-owned large commercial banks and joint-stock commercial banks are the main force of market-based legalization of “debt-to-equity swaps”, they can Release a certain amount of costly long-term funds. ...[Details]

Interpretation of the top ten institutions: the release of 700 billion slightly exceeds market expectations is conducive to the establishment of the bottom of the market

Huatai macro commented on the directional RRR cut, and the currency turned clearly. After the RRR cut, it is likely that there will be a RRR cut, releasing 700 billion yuan slightly exceeding the market expectations of 400 billion. Yang Delong, chief economist of Qianhai Open Source Fund, said that the central bank's RRR cut will effectively alleviate the current tight funding situation and help the bottom of the market. ...[Details]

Directional reduction and landing release of 700 billion funds! How to influence enterprises, stock markets, and bond markets?

The RMB deposit reserve ratio of the 12 state-owned large commercial banks of ICBC, Agricultural Bank of China, Bank of China, China Construction Bank and Bank of Communications, and CITIC Bank and China Everbright Bank will be reduced by 0.5 percentage points, and the funds will be released by about 500 billion yuan. ...[Details]

The central bank's targeted RRRR released 700 billion liquidity. After the previous RRR cuts, the Shanghai stock index rose more.

Encourage five state-owned large commercial banks and 12 joint-stock commercial banks to use the targeted RRR cuts and funds raised from the market to implement the “debt-to-equity swap” project in accordance with the market-based pricing principle. Support the implementation of “debt-to-equity swap” to truly exercise shareholder rights, participate in corporate governance, and promote mixed ownership reform. ...[Details]

Guan Qingyou: Directing the RRR, releasing liquidity, alleviating financial pressure, helping to improve market sentiment

The dean of the Financial Research Institute and the chief economist Guan Qingyou commented on the central bank's directional reduction. The RRR cut was mainly to implement the requirements of the State Council's executive meeting, to reduce the standard, to focus on supporting debt-to-equity swaps, and to steadily promote de-leverage. Objectively release liquidity, ease financial pressure, and help improve market sentiment. ...[Details]

List of deposit reserve rates
List of beneficiary shares