The People’s Bank of China said yesterday that it had eased lending restrictions on more than 20 small banks nationwide, as it seeks to channel more funds to cash-strapped private firms and the farming sector.
The bank will cut the reserve requirement ratio for rural banks by half a percentage point to 16 percent, effective today, it said in a statement.
The group includes six lenders in Zhejiang Province, where many privately owned companies are facing a credit crunch, said the statement from the central bank’s Hangzhou City branch.
An official at the headquarters of the central bank in Beijing confirmed the number, but declined to say where the other banks were located.
“All of the more than 20 banks are included [in the cut],” said the official, who also declined to be named.
The move, which reduces the amount of funds banks must set aside, is a sign that the government is selectively easing tight credit restrictions put in place to curb surging inflation and property prices.
The central bank said it would maintain its “prudent monetary policy,” while giving more credit to support weak parts of the economy such as the agricultural sector and small businesses.
Credit restrictions have fuelled an explosion in underground lending as private firms borrow money at high interest rates from informal lenders after being rejected by major banks who favor state-controlled enterprises.
However, the disappearance of more than 90 entrepreneurs in Wenzhou City in Zhejiang, who are thought to have fled outstanding debts, has fuelled concerns that even the informal lending market could collapse.
The Chinese government, anxious about rising living costs, has pulled on a variety of levers to curb price rises in the past 18 months, including restricting the amount banks can lend and hiking interest rates.
However, the central bank said recently it would “fine-tune” monetary policy amid growing concerns that the weak global economy is increasing the risk of a hard landing for China.
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