CBRC relaxes ratios
(9 July 2012 – China) China’s slowing economy will get a boost as the central bank scraps its 75 percent loan-to-deposit ratio limit for bank lending to adopt flexible monitoring of individual banks by regulators.
'There is an initial consensus that the compulsory rule of 75 per cent loan-to-deposit ratio will be eliminated as an indicator of liquidity risks, but the China Banking Regulatory Commission (CBRC) will keep it in its daily monitoring of banks' performance,' the Economic Information Daily paraphrased a source close to the CBRC, China's banking watchdog, as saying.
Market talk of an imminent change to the loan-to-deposit ratio (LDR) has swirled for months as volatility in new lending and deposit growth has surged, making it harder to assess the trajectory of credit creation in the world's second biggest economy.
Regulators have routinely said they are examining the causes of volatility in the pace of new lending, but deny they plan to relax LDR rules. CBRC vice chairman, Wang Zhaoxing, last did so in mid-May.
The LDR is designed to tie lending closely to the level of deposits, providing a stable source of capital for credit creation and reducing bank exposure to short-term funding and leverage risks.
Too tight a cap constrains the ability of banks to lend, a particular problem in China where new lending is directed at Beijing's behest as a key component of monetary policy operations and a crucial barometer of economic activity.
Market talk of an imminent change to the loan-to-deposit ratio (LDR) has swirled for months as volatility in new lending and deposit growth has surged, making it harder to assess the trajectory of credit creation in the world's second biggest economy.
Regulators have routinely said they are examining the causes of volatility in the pace of new lending, but deny they plan to relax LDR rules. CBRC vice chairman, Wang Zhaoxing, last did so in mid-May.
The LDR is designed to tie lending closely to the level of deposits, providing a stable source of capital for credit creation and reducing bank exposure to short-term funding and leverage risks.
Too tight a cap constrains the ability of banks to lend, a particular problem in China where new lending is directed at Beijing's behest as a key component of monetary policy operations and a crucial barometer of economic activity.
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