China Cuts Reserve Ratio Requirement to Encourage Lending to SMEs

In its latest effort to keep economic growth from slowing too sharply in the second half, the People’s Bank of China has announced it will reduce the amount of cash lenders must hold as reserves from next year, reports Bloomberg.

Banks will enjoy a 0.5 percentage point cut in its reserve ratio requirement if eligible lending exceeds 1.5 percent or more of their new lending in 2017.

Deduction will be 1.5 percentage point if eligible lending reaches 10 percent or more of new lending in 2017, or if "inclusive finance" loans take up 10 percent of total outstanding loans in 2017.

Rural commercial banks who meet an earlier requirement that at least 10 percent of new lending is local can receive a 1 percentage point reduction.

The move, apparently aimed at encouraging lending to SMEs, will free up about 600 billion yuan ($90 billion) of funding, according to a note written by Ming Ming, head of fixed-income research at Citic Securities Co. in Beijing and a former PBOC official.

Lianxun Securities Co. analysts led by Li Qilin estimated that the cut will release about 700 billion yuan of liquidity.

The reserve ratio requirement for large banks currently stands at 17 percent.


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