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  • Oct 22, 2014
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PBOC sets loan reserve ratios for small banks

PBOC sets reserve level of 2pc for small players, while the bigger ones still have to deal with 20pc

PUBLISHED : Saturday, 03 November, 2012, 12:00am
UPDATED : Saturday, 03 November, 2012, 3:22am

The People's Bank of China will impose a lower reserve requirement ratio for smaller lenders in an attempt to boost credit to small and medium-sized firms amid the slowing economy.

The new policy was disclosed in a report published yesterday in the official China Securities Journal that quoted the central bank deputy governor Pan Gongsheng. The report did not provide details about what criteria lenders must meet.

The PBOC has been implementing a "differentiated reserve requirement ratio", setting a ratio of 20 per cent for the biggest banks, while the requirement for smaller lenders is two percentage points lower, Pan was quoted as saying.

A lower requirement frees up funds for lending.

Meanwhile, the central bank said in its third-quarter monetary policy report yesterday that it would keep monetary policy prudent and money supply reasonable to prioritise its job of supporting economic growth.

The authority will also keep an eye on inflation, which was stable in the third quarter, according to the report.

Also, the central bank will continue to adequately "fine-tune" monetary policy through interest rate cuts and money market operations known as reverse repos that inject liquidity into the banking system.

The report added that the central bank would continue its monetary measures to maintain "reasonable liquidity" in the market and stable growth in credit.

Despite the central bank's previous measures to spur economic growth, the mainland's small- and medium-sized businesses still face tough times finding credit.

She Minhua, an analyst at Zhong De Securities, said the current reserve requirement ratio for smaller lenders was too high and that was deterring them from lending to smaller companies.

Analysts said mainland banks were more reluctant to lend to small- and medium-sized businesses because they were more vulnerable in an economic downturn.

Export-dependent enterprises along the Yangtze River Delta and Pearl River Delta have been hit hard as exports slowed due to the weakened global economy.

"The PBOC is urging those smaller lenders to take a bigger role in lending to [SMEs]," said Zhang Zhiwei, an analyst with Japanese bank Nomura. But he cautioned that "it is likely to increase bad loan risks for smaller lenders".

The implementation of a differentiated reserve requirement would likely reduce the possibility of a further interest rate cut, Zhang added.

But She contended that the bad loan risk was manageable because the lenders will not "extend loans blindly".

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