China Rate Cut

China Rate Cut: PBOC’s RRR cut last evening was an early “Ang Bao” to the market and economy. The 50bps RRR cut across Chinese banks would release some Rmb600b liquidity from the banking sector and raise banks’ 2015E profits by 0.9%, according to Credit Suisse.

City commercial banks with supporting SMEs get a 100bps cut, which should raise profits by about 1.8% and rural commercial banks with high SME and retail loans portfolio get a 150bps cut, which could raise profits by 2.4%.

The RRR cut also alleviates margin pressure from the November 2014 benchmark rate cut, which trimmed lending rates (-40bps) more than deposit rates (-25bps).

Loose monetary policy, liquidity and a more active household asset allocation is a major share price driver, with financial institutions the largest beneficiary.