China’s central bank mulls easing liquidity requirements at lenders
The People's Bank of China is weighing up whether to change rules governing how loan-to-deposit ratios are calculated at banks, a move that would boost liquidity conditions, banking-sector sources said.
The People's Bank of China is weighing up whether to change rules governing how loan-to-deposit ratios are calculated at banks, a move that would boost liquidity conditions, banking-sector sources said.
They said the mainland's central bank revealed during a meeting with domestic financial institutions that it was planning to include savings held by banks for non-deposit-taking financial institutions in banks' deposits, which would expand the base for calculating loan-to-deposit ratios.
Under the current rules, mainland banks are allowed to lend up to 75 per cent of their deposits.
The sources said 24 major financial institutions were told at the meeting that even if interbank deposits were included in the base, they might not need to set aside additional reserves, leaving more liquidity available for lending and investment.
The move is seen as another attempt to reinvigorate productive business investment without resorting to an across-the-board cut to the reserve requirement ratio (RRR).
It has been estimated that a 50-basis-point cut to the reserve requirement ratio would pour 2.4 trillion yuan (HK$2.99 trillion) into the system after taking into account the money-multiplying effect of fresh lending on net money supply.
