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".