Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

China Signals Further Reserve Ratio Cut to Spur Bank Lending

Published 18/06/2020, 01:47
Updated 18/06/2020, 02:18
© Bloomberg. An employee arranges genuine bundles of Chinese one-hundred yuan banknotes at the Counterfeit Notes Response Center of KEB Hana Bank in Seoul, South Korea, on Monday, Aug. 14, 2017. China's factory output and investment slowed somewhat in July, according to data released today, yet the yuan appeared not to take the data as negative, if in fact it's paying attention to it at all. Photographer: SeongJoon Cho/Bloomberg

© Bloomberg. An employee arranges genuine bundles of Chinese one-hundred yuan banknotes at the Counterfeit Notes Response Center of KEB Hana Bank in Seoul, South Korea, on Monday, Aug. 14, 2017. China's factory output and investment slowed somewhat in July, according to data released today, yet the yuan appeared not to take the data as negative, if in fact it's paying attention to it at all. Photographer: SeongJoon Cho/Bloomberg

(Bloomberg) -- China’s cabinet signaled that the central bank will act to make more liquidity available to banks so they can lend more, including by cutting the amount of money they have to keep in reserve.

China will reduce the reserve requirement ratio and use its relending policy to keep liquidity ample, state television reported Wednesday, citing a State Council meeting chaired by Premier Li Keqiang. The council, which is China’s cabinet, also urged financial institutions to support companies by sacrificing 1.5 trillion yuan ($212 billion) in profits this year by offering lower lending rates, deferring loan repayments and cutting fees.

China Wants Banks to Cap Their Profit Gains to Single Digits

The People’s Bank of China is trying to bring down borrowing costs across the economy to aid the recovery from the coronavirus slump in the first quarter, without engaging in large-scale debt stimulus seen elsewhere. That stance has however contributed to rising bond yields and concerns that market and monetary conditions are tightening.

“An RRR cut is likely to come shortly, perhaps even this weekend,” according to Lu Ting, chief China economist at Nomura Holdings (NYSE:NMR) Inc. in Hong Kong. “The policy strategy to squeeze banks might be positive for markets and economy first, but could backfire later if non-performing loans rise too fast and the government has to come to rescue banks on a large scale.”

The government “will continue to guide lending and bond interest rates down, give out loans with preferential interest rates, defer payment of principal and interest on loans to medium-sized, small and micro enterprises, support the issuance of unsecured loans for SMEs, and reduce bank charges,” according to the CCTV statement.

The reserve ratio currently stands at 11% for large banks, with lower requirements for smaller lenders.

PBOC Governor Yi Gang, China Securities Regulatory Commission Chairman Yi Huiman and China Banking and Insurance Regulatory Commission Chairman Guo Shuqing will speak Thursday morning at the annual Lujiazui Forum in Shanghai, according to the forum’s website.

(Updates with PBOC governor speaking on Thursday in sixth paragraph, economist’s comment. The day the state council met was corrected in an earlier version of this story.)

©2020 Bloomberg L.P.

© Bloomberg. An employee arranges genuine bundles of Chinese one-hundred yuan banknotes at the Counterfeit Notes Response Center of KEB Hana Bank in Seoul, South Korea, on Monday, Aug. 14, 2017. China's factory output and investment slowed somewhat in July, according to data released today, yet the yuan appeared not to take the data as negative, if in fact it's paying attention to it at all. Photographer: SeongJoon Cho/Bloomberg

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.