China’s central bank extended a reserve-requirement ratio (RRR) cut to Industrial Bank Co (興業銀行) and China Minsheng Banking Corp (民生銀行) as officials try to support economic growth without unleashing broader stimulus.
The People’s Bank of China (PBOC) approved a half a percentage point cut for Industrial Bank, and Minsheng Bank also got a reduction, spokesmen said in separate telephone interviews.
China Merchants Bank Co (招商銀行) was also included, according to analysts at China International Capital Corp (中金公司).
Chinese officials are trying to shore up an economy set for the weakest growth since 1990 without worsening credit risks fueled by an explosion in lending during and after the global financial crisis.
The PBOC is widening the group of lenders covered by a reserve-ratio move that was announced on Monday last week and is intended to help boost funding for small and micro businesses and agriculture.
“It further confirms that China’s neutral monetary policy is leaning towards relaxation,” said Ding Shuang (丁爽), senior China economist with Citigroup in Hong Kong.
“At the same time, it also shows that the central bank is still not willing to send a strong signal of policy easing” by taking more aggressive measures, he said.
The three national lenders had about 7 trillion yuan (US$1.1 trillion) of combined deposits by the end of last year, according to their annual reports. That suggests that a half- point cut for all three would free up about 35 billion yuan.
Chinese stocks rose yesterday, sending the Shanghai Composite Index to a two-month high, after the central bank expanded the number of lenders eligible for cuts to their reserve-requirement ratios.
China Minsheng, the nation’s first privately owned bank, rose 2.6 percent in Hong Kong and gained 3.1 percent in Shanghai. Industrial Bank advanced 1.6 percent. China Merchants, which had yet to confirm the cut, climbed 2 percent in Hong Kong and 1.7 percent in Shanghai.
On Monday last week, the central bank said the cut, effective yesterday, applied to most city commercial banks, non-county level rural commercial banks and non-county level rural cooperative banks.
The criteria for the reduction included banks’ levels of lending to “small and tiny businesses.”
“Some banks have approached the central bank, and after adjustment of the ‘tiny and small’ business definitions, both Minsheng Bank and Industrial Bank are qualified for a required reserve-ratio cut,” China International Capital banking analysts Huang Jie (黃潔), Mao Junhua (毛軍華) and Zhu Jie wrote yesterday.
China’s economy is expected to grow 7.3 percent this year, the weakest pace since 1990, according to the median estimate in a Bloomberg News survey of economists.
The move adds “to the recent targeted monetary easing steps,” said Dariusz Kowalczyk, senior economist at Credit Agricole SA in Hong Kong. “On one hand, this is positive for growth, but on the other, inclusion of larger private banks in targeted RRR cuts lowers the odds for a nationwide move, and this is the key message from the news.”
Minsheng Bank had 404.7 billion yuan of loans to small and micro businesses as of Dec. 31, an increase of 28 percent from a year earlier, according to its annual report. Merchants Bank had 315 billion yuan, up 78 percent. Industrial Bank’s annual report did not give those numbers.
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