Several midsize banks said Monday they are eligible for a
central bank program aimed at expanding loans to smaller borrowers,
part of a targeted step to spur economic growth in China.
Economists and analysts said the inclusion of the midsize banks
in the program--which cuts the level of deposits that certain banks
must hold against their loans, known as the reserve requirement
ratio--is larger than the market thought when the People's Bank of
China unveiled it last week.
"We view this as a positive move," said ANZ economist Liu Ligang
in a research note. "And we believe that China will likely further
relax the monetary policy amid the economic slowdown."
The central bank clarified late Monday on its Twitter-like Weibo
microblogging account that the inclusion of midsize banks doesn't
suggest an expansion of the reserve ratio cut. Rather, any bank is
eligible so long as a significant portion of its lending is to the
agricultural sector and smaller companies, the central bank
said.
China Merchants Bank, China's sixth-largest lender by assets;
Industrial Bank, the eighth-largest listed lender in terms of
assets; and China Minsheng Bank, the biggest private lender, said
Monday that they had won central bank approval for a cut in their
reserve requirement ratio.
The central bank announced a week ago that it was trimming by
half a percentage point the reserve requirements for banks that
meet its standards for loans to the rural sector and smaller
companies. Before the cut, most Chinese bank were required to keep
20% of their deposits on reserve with the central bank as a cushion
against liquidity and repayment problems.
In announcing the reserve cut, which took effect Monday, the
central bank said it would affect about two-thirds of the nation's
city commercial banks as well as rural lenders. But the impact of
the move will be larger than initially anticipated with midsize
lenders also on the list, analysts said.
The reserve ratio cut will effectively free up more money for
banks to lend, though it falls short of a universal cut that would
include China's biggest banks.
Analysts originally estimated that a targeted cut applied only
to city commercial and rural banks would release about 100 billion
yuan ($16.13 billion) in liquidity into China's banking sector.
With the addition of the three midsize lenders, the cut could free
up an additional 35 billion yuan in liquidity based on their
deposit bases in March, Nomura economist Zhang Zhiwei estimated
Monday.
Slower economic growth this year has prompted China to introduce
several targeted fiscal stimulus measures--including accelerated
spending on water, energy and transport projects--and to ensure
that sufficient credit is channeled to key parts of the economy.
Gross domestic product growth slowed to 7.4% year-over-year in the
first quarter of this year from 7.7% in the final quarter of last
year.
Shares of the three midsize lenders ended higher Monday on the
news and on hopes of further policy easing. China Merchants Bank
shares rose 1.6% to 10.39 yuan, Industrial Bank's rose 1.6% to
10.27 yuan, and China Minsheng Bank's gained 3.1% to 7.68 yuan.
To be eligible for the reserve cuts, banks need to extend more
than 50% of their new loans to small businesses or the farm sector
and have at least 30% of their outstanding loans to either group,
the central bank says.
Agricultural Bank of China, the country's third-largest lender
by assets and the biggest rural lender, said Monday without
elaborating that it wasn't tapped to participate in the central
bank's reserve ratio cut.
And China Citic Bank, the country's seventh-largest lender by
assets, said it didn't meet the central bank's criteria for a
reserve ratio cut. New loans to small businesses accounted for
around 35% of its total new lending last year, the bank said, while
outstanding loans to small businesses accounted for 18% of total
outstanding loans at the end of 2013, it added.
China Merchants Bank said in a filing with the Shanghai Stock
Exchange it has received approval from the central bank to cut the
reserve requirement ratio. Industrial Bank said it received
approval from the People's Bank of China's Fuzhou branch on Friday
to cut the reserve level by 0.5 percentage point because it met
central bank requirements on lending to key sectors. China Minsheng
Bank also told The Wall Street Journal that it received central
bank backing for a lower reserve ratio, though it didn't give
further details.
Late last month, China's State Council, or cabinet, promised a
cut in the reserve requirements for some banks, without providing
details. The announced plans followed another targeted move in
April aimed at county-level rural commercial banks and rural
cooperatives.
Grace Zhu
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