Investment Rating - Industry Rating: Outperform the market (maintained rating) [7] Core Views - The necessity for the central bank to inject medium- and long-term stable funds into banks is increasing [2][14] - The necessity to lower the Loan Prime Rate (LPR) within the year is not significant [4][38] - The necessity to lower deposit rates is also not significant [6][45] Summary by Sections 1. Necessity for Central Bank's Fund Injection - It is expected that there will be one more reserve requirement ratio (RRR) cut this year, likely in December [2][14] - Historical patterns indicate an average of one comprehensive RRR cut every six months since 2021, with the last cut over five months ago [14] - The balance of MDS and MLF tools has exceeded 11 trillion yuan, increasing the difficulty of liquidity management for banks [20][24] - Banks are showing a clear trend of shortening deposit durations, indicating a need for long-term liquidity release through RRR cuts [3][27] 2. Necessity to Lower LPR - The likelihood of lowering LPR this year is low, as it may not significantly stimulate credit demand in Q4 [4][38] - Historical data shows that the probability of LPR cuts in November and December over the past five years is low [39] - Lowering LPR could exacerbate repricing pressure in the first quarter of the following year [40][44] 3. Necessity to Lower Deposit Rates - There is currently no indication of a new round of deposit rate cuts, as the last collective cut by major banks occurred in May [6][45] - The cost of liabilities has significantly improved due to the maturity of high-interest deposits, reducing the necessity for further cuts [51][53] - Lowering deposit rates could lead to increased deposit disintermediation, negatively impacting the stability of funding across year-end [53][57]

Investment Rating - Industry rating is "Outperform the Market" (maintained rating) [5] Core Viewpoints - The report discusses the pricing mechanisms of 14-day OMO, MDS, and MLF, emphasizing that these tools are subject to a bidding process with multiple price points, and their pricing should theoretically be lower than market rates due to central bank backing [9][10] - The report highlights that the average winning bid rates for these tools are influenced by policy rates, market rates, the bank's own positions, and interbank conditions [10][11] - The expected average winning bid rates for various tools are projected, with 14-day OMO expected to maintain around 1.45%, 3M MDS at approximately 1.5%, and 1Y MLF at around 1.70% [12][13] Summary by Sections 1. Pricing of 14-day OMO, MDS, and MLF - The report outlines the operational changes since September 19, 2025, where the central bank restarted the 14-day OMO and adjusted it to a fixed quantity, interest rate bidding, and multiple price points [9] - It notes that the 14-day OMO is not a regular operation and is typically concentrated around specific periods such as before the Spring Festival and late September [9] 2. Considerations for Bidding - Banks consider four main factors when bidding: policy rates, market rates, their own positions, and interbank conditions [10] - The 7-day OMO rate serves as a benchmark, currently at 1.4%, which influences the rates of other monetary policy tools [10] 3. Expected Winning Bid Rates - The report predicts that the 14-day OMO rate will remain around 1.45%, with historical spreads between 7-day and 14-day OMO rates being approximately 15 basis points [12] - It also anticipates that the 3M MDS will be around 1.5% and the 1Y MLF at approximately 1.70% [13]