PBOC Seeks to Boost Lending With More Banks Eligible for RRR Cut

(Bloomberg) -- The People’s Bank of China said it’ll adjust the calculation of some banks’ reserve ratios, a move aimed at boosting the impact of a previous easing step as the economy slows.

  • Loans to small- and micro-sized enterprises with a credit line of less than 10 million yuan ($1.46 million) will qualify for targeted reserve-requirement ratio cuts, up from the previous standard of 5 million yuan, according to a statement released on the PBOC website

Key Insights

  • The PBOC said the move can "expand the coverage" of a previous targeted RRR cut, and guide financial institutions to better meet the financing demand of SMEs
  • The adjustment may release up to 400 billion yuan of liquidity, according to China International Capital Corporation. The tweak will boost net interest margins by one basis point and lift profit by 0.8 percent, assuming all listed Chinese banks qualify for the 1.5 percentage point targeted RRR cut under the change, CICC said.
  • At the most, the policy could add 770 billion yuan of liquidity, according to Ming Ming, head of fixed-income research at Citic Securities Co. in Beijing, though the amount of funding released would probably be lower than that estimate
    • Wednesday’s announcement will be followed by other measures to ease the funding squeeze ahead of Chinese New Year, including RRR cuts and loans offered via targeted Medium-term Lending Facility, Ming said.
  • The step signals that the PBOC has continued with easing in small policy tweaks while avoiding significant moves. China last month dropped the word "neutral" from its monetary policy stance and said it’ll strike "an appropriate balance" between tightening and loosening for 2019.

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  • Senior central bank officials pushed back against interpretations of its recent moves as signaling significantly looser policy

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