May 30, 2014 / 10:38 AM / 3 years ago

China to cut reserve requirements for more banks

BEIJING (Reuters) - China will lower the reserve requirement for more banks to free up additional cash for loans, the government said on Friday, as it seeks to shore up growth in the world’s second-largest economy.

The reserve requirement, or the level of deposits that commercial banks have to hold at the central bank, will be reduced for banks whose lending is geared towards the real economy, the cabinet said after a weekly meeting.

Whether banks qualify for a lower reserve ratio will depend on whether their loans to smaller-sized firms and the farming sector account for a certain proportion of their total lending, the government said in an online statement. No further details were provided.

This is the second time in as many months that China has lowered the reserve requirement for select banks to encourage more corporate lending and bolster its economy, which looks to be caught in its worst slowdown in about 25 years.

The continuous loosening in policy -- albeit only in small steps -- underscores the government’s determination to keep the economy growing at a healthy pace so as to provide a stable backdrop for sweeping reforms.

“Although it is not completely clear if this RRR cut will be applied to all banks, we believe it could be,” Zhang Zhiwei, an economist at Nomura, said in a note.

“We continue to expect more policy easing measures in the third quarter, but it may take the form of a ‘targeted and gradual’ RRR, with a differential effect on different banks, and in a less transparent way than a broad-based RRR cut.”


Other pro-growth measures announced on Friday included an instruction to banks to speed up lending, and a promise from the central bank to disburse more loans to commercial banks through a scheme also known as “re-lending”.

Government administrative fees will also be cut to lower the cost of doing business.

“We will increase the scale of re-lending and the amount of special-purpose financial debt issuance to support smaller firms,” the cabinet said.

China’s central bank conducted its last “re-lending” exercise last week when it loaned 300 billion yuan ($48.1 billion) to China Development Bank for refurbishment works in shanty towns.

The “re-lending” schemes are a way for China to increase money supply in the system and lift economic growth.

The piecemeal policy easing measures that China has taken so far this year to boost the economy confounds some investors’ expectations that it would loosen policy more forcefully, such as lowering the reserve requirement for all banks.

Some analysts say the government’s “targeted” approach this year is a sign that authorities want to avoid fuelling wasteful investment or speculation with a big loosening move that may not benefit the real economy.

The last time China lowered the reserve ratio was on April 16, a move that applied only to rural banks to lift the agricultural industry. The ratio was reduced by between 50 basis points and two percentage points, depending on the size of the bank.

Economists polled by Reuters in April expected China’s economy to grow by 7.3 percent this year, the weakest pace in 24 years.

Reporting by Koh Gui Qing and Aileen Wang; Editing by Jacqueline Wong and Ron Popeski

Our Standards:The Thomson Reuters Trust Principles.
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