(Yicai Global) June 25 -- China’s central bank has cut the amount of cash that most of the country’s banks must hold as reserves for the third time this year to buoy corporate funding amid trade tensions with the US.
The People’s Bank of China will lower the reserve requirement ratio by 0.5 percentage points for the majority of domestic and foreign lenders from July 5, releasing about CNY700 billion (USD107.6 billion) in funds, it said in a statement yesterday. That is almost double April’s cut of CNY400 billion, which left large banks with a 16-percent ratio and smaller ones with 14 percent.
The policy change should ease investors’ concerns over China’s slowing economic growth and tighter liquidity amid a standoff with the US over trade. The central bank encouraged lenders to use the additional liquidity for debt-to-equity swaps, easing strains on indebted companies.
“The intensity of the move exceeded market expectations,” Reuters reported Wang Jun, Beijing-based chief economist at Zhongyuan Bank, as saying. “This move will help support the real economy and stabilize financial markets. We’ve seen rising debt defaults and funding strains on small firms, as well as a sharp adjustment in the capital market.”
The announcement followed the worst weekly loss in the Chinese stock market since early February, weakened by days of tit-for-tat tariff threats. The Chinese yuan on June 22 also fell to its lowest point versus the US dollar in more than five months.
The biggest part of the capital freed, CNY500 billion, comes from a list of 17 financial institutions that includes China’s five large state-owned banks, namely Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications. Some 12 joint-stock commercial lenders such as China Citic Bank and China Everbright Bank are also on the list.
Postal savings banks, urban and rural commercial banks, and foreign banks are expected to unbind about CNY200 billion. This may increase lending to credit-strapped small businesses.
Editor: Emmi Laine