What Is a Credit Market?

The credit market is a market for credit instruments. The term of credit market trading instruments belonging to the money market category is within one year, and the term of credit market trading instruments not belonging to the money market category is more than one year. The credit market is a product of the development of the commodity economy. ^[1]

Credit market

The credit market is a market for credit instruments. The term of credit market trading instruments belonging to the money market category is within one year, and the term of credit market trading instruments not belonging to the money market category is more than one year. The credit market is a product of the development of the commodity economy. ^[1]

Credit market

The main function of the credit market is to adjust the temporary or long-term capital surplus to promote the development of the national economy; in addition, the credit market is also

Market entities on the credit market can be divided into

Loans are the most important market tool in the credit market. The loan business is by far the most important asset business of commercial banks.

Since the second half of 2002, commercial banks' loans have been reversed from the previous years, and they have begun to accelerate their growth. After entering 2003, loans have grown "extraordinarily". In the first half of 2003, new loans have exceeded the growth rate of the previous year, and the growth rate of loans has repeatedly reached new highs. As of the end of August, the balance of loans in both domestic and foreign currencies increased by 23.9% year-on-year, the highest since August 1996. After the central bank announced an increase in the statutory deposit reserve ratio on August 23, 2003, at the end of September, the loan growth rate declined slightly, but the balance of domestic and foreign currency loan balances still grew by 23.7% year-on-year, which was 5.3 percentage points higher than the beginning of the year . From January to September, the total amount of domestic and foreign currency loans increased by 26719 billion yuan, of which RMB loans increased by 247.6 billion yuan, an increase of 107.1 billion yuan year-on-year, which was an increase of 624 billion yuan over the previous year. The "extraordinary" growth in loans since 2003 is in stark contrast to the slowdown in loan growth that began in 1998. Through the analysis, it can be considered that the following reasons have caused a sudden change in the pattern of China's credit market from "poor loans" to expansion.

(I) High-growth industries such as automobiles and real estate have expanded demand for effective loans

Since 2002, China has seen a good momentum of accelerated economic growth and increasing factors of economic autonomy.

To adopt a series of policies to expand domestic demand. Since the 1997 Southeast Asian financial crisis, China has implemented a policy of expanding domestic demand, an active fiscal policy, and a sound monetary policy. After several years of efforts, the guidelines for expanding domestic demand and the guidance and cultivation of domestic demand gradually became effective, and the cumulative policy effect began to be apparently released in 2002. In addition, after several years of cumulative development, especially the unremitting efforts to expand domestic demand and start consumption, the two high-growth industries, which are aimed at upgrading the consumption structure of residents, have developed rapidly and have shown great vitality. The improvement of the macro economy and the emergence of new high-growth industries have completely reversed the problems of no hot spots in the economy and no investment in loans. On the one hand, the economic warming has made corporate loan demand more robust, on the other hand, the operating conditions of enterprises have improved, and the emergence of high-growth industries has also promoted the enthusiasm of commercial banks for lending.

(2) The financing structure is too singular, and economic growth is overly dependent on bank credit

Due to the imperfect development of China's capital market and the small proportion of direct financing, economic development relies too much on bank financing. Since 2002, contrary to China's economy entering a new round of growth cycle, the stock market has basically been sluggish, and capital market funding has declined. In the first six months of 2003, the proportion of loans in corporate financing structure increased sharply from 72.8% in 2000 to 97.8%, while the financing function of the securities market declined due to the drag of the stock market downturn.

(3) The liquidity of the financial system is loose

In the first half of 2002, due to the uncertain economic growth situation, in the case of a large increase in foreign exchange accounts leading to a large amount of base currency investment, the central bank did not carry out large-scale base currency withdrawals to support economic growth, resulting in a partial liquidity in commercial banks loose. This created conditions for a sudden change in the loan situation in the second half of 2002. Since 2003, the scale of foreign exchange reserves has expanded rapidly, which has accelerated the growth of foreign exchange accounts. At this time, despite the central bank's best efforts to adopt "hedging" measures, due to tiredness to cope, the base currency invested through foreign exchange funds is still increasing, and commercial banks are still quite liquid.

(IV) Local governments have a strong desire to expand and promote loan expansion from the outside

Since the second half of 2002, China's economy has entered a new cycle of growth. But in this round of economic growth, the most obvious feature is that loan expansion and fixed asset investment growth "go hand in hand." It should be noted that the expansion of loans and the growth of fixed assets are basically completed in the second half of 2002, and the time is basically the same. In recent years, our government has gradually realized that the lagging urbanization is the root cause of various contradictions in the national economy, and has decided to vigorously promote urbanization construction, which provides better opportunities for governments at all levels to strengthen urban infrastructure.

After the new local government took office, some local governments spared no effort to promote local urbanization in order to highlight their achievements. Large-scale investment projects such as automobile cities, university towns, electronics cities, and industrial parks have been built in various places. The expansion of infrastructure investment such as municipal facilities, road and bridge construction, and park development has reached a boiling point. Some local governments exert influence on the local branches and commercial banks of the central bank through the "financial work" institutions directly under their leadership, which has promoted the credit expansion of the banking system from the outside.

(V) Changes in the operating mechanism of commercial banks

At present, commercial banks, in contrast to the "priority of lending" in previous years, have become active in lending. In addition to the improvement of the external economic environment for lending, it is also related to some new changes in the commercial banks' own operating mechanisms.

First of all, the survival competition in the banking industry has intensified, and each bank has engaged in fierce competition for market share. In recent years, joint-stock banks have grown stronger, and their share of the national memory loan market has continued to rise. The four major state-owned banks have undoubtedly felt the tremendous pressure brought by this change. State-owned commercial banks started to catch up in the second half of 2002 and actively issued loans. Compared with the first half of the year, the pattern of new loans in the second half of 2002 reversed, and state-owned commercial banks accounted for 55% of the total incremental loans. New loans in the second half of 2002 accounted for 79% of the whole year, much higher than in the first half. Since 2003, the proportion of loans to state-owned commercial banks has continued to rise. Until July, the central bank conducted multiple "window guidance" to remind the loan risks, the state-owned commercial banks only appropriately adjusted the situation of loans that were too fast. Only slightly increased the proportion of increased loans.

Secondly, changes in the internal assessment standards of commercial banks have resulted in commercial banks operating strategies that are significantly different than before. The internal incentive mechanism of banks has always been the most important factor affecting bank credit. The 1997 Southeast Asian financial crisis greatly strengthened the risk awareness of domestic commercial banks, requiring strict control of the quality of credit assets in internal assessments, and emphasizing the responsibility system of loan officers, which led to bank lending facing strong risk constraints for a long period of time. "Xi loan" situation. However, since the second half of 2002, wholly foreign-owned commercial banks in various countries have put the reduction of non-performing loan ratios and increased profits in the first place, and have increased their assessments accordingly. In addition, at the beginning of 2002, the Central Financial Work Conference determined the goal of "a wholly state-owned commercial bank that is qualified to be reorganized into a state-controlled joint-stock commercial bank, and that it can be listed if it is mature". In order to obtain an early listing, commercial banks must meet the relevant requirements for the non-performing loan ratio as soon as possible, and the willingness of commercial banks to reduce the non-performing loan ratio is further strengthened. At the same time, after several years of exploration, commercial banks have found that the most effective way to reduce non-performing assets is not to reduce loan issuance, but to accelerate loan expansion. By increasing loans, not only can the "denominator" of the non-performing loan ratio be increased, thereby reducing the non-performing loan ratio, but also increasing the book return. This action can "save two birds with one stone" and successfully and conveniently reach the assessment goal.

Since 2003, infrastructure loans and bill financing have become new sources of loan growth for commercial banks. Both of these businesses are conducive to the expansion of commercial banks' loan amounts, the reduction of non-performing loan ratios, and the completion of interest collection targets, which have become sources of profit growth. Due to the long term of infrastructure loans, and mainly facing infrastructure investment with government background or guarantees, the returns are relatively stable, and non-performing assets will not appear in the short term. For bill financing, in the assets of China's commercial banks, the bill discounting business is considered as a credit business and occupies the credit scale, but there is no overdue phenomenon. In the traditional sense, this type of credit business has almost zero non-performing assets. . Therefore, all banks regard vigorously developing the bill discount business as a strategic means for commercial banks to effectively reduce the non-performing loan ratio.

Once again, since the second half of 2002, there has been a fixed braking mechanism for commercial banks in various countries. In order to reduce the non-performing loan ratio and increase profits, on the one hand, the head office of a wholly state-owned commercial bank has reduced the deposit interest rate in the system, and at the same time, it has expanded the authorized credit lines of grassroots banks The continuous decentralization of credit approval authority has effectively promoted the loan marketing of grassroots banks; on the other hand, banks have strengthened their profit index assessments, and bonuses and profits have been significantly strengthened compared with the past.

In addition to the above reasons, since the second half of 2002, the central bank has been considering the separation of monetary policy and banking supervision functions. The supervisory departments of the central bank's branches are waiting to be separated. The supervision of commercial banks is "green and yellow", which has also caused a short-term regulatory vacuum. It provides opportunities for commercial banks to rapidly expand credit.