China may relax a loan-to-deposit ratio for banks to spur lending and support growth, economists from Goldman Sachs Group Inc. and Barclays Capital said.
Regulators are likely to relax “regulatory controls such as the 75 percent loan-to-deposit ratio which will enable commercial banks to have the ability to extend more loans,” Song Yu, a Beijing-based economist at Goldman, wrote in a Dec. 14 note. Such a cap is “a more binding constraint on smaller lenders who face more difficulty in attracting deposits,” Chang Jian, a Hong Kong-based economist for Barclays, said in an interview by phone today.
China’s leaders pledged this week to fine-tune economic policies as needed next year as the government seeks “steady” growth and the global economy falters. The central bank has already cut banks’ reserve requirements and encouraged lending to smaller businesses as exports wane and the economy cools.
In the first 10 days of December, deposits at the nation’s four biggest banks fell by 400 billion yuan ($63 billion), limiting their ability to lend, the 21st Century Business Herald reported today, citing an unidentified person close to the lenders. The newspaper said that capital outflows from China may be a factor.
The report referred to Bank of China Ltd., Industrial & Commercial Bank of China, China Construction Bank Corp., Agricultural Bank of China Ltd. Half of the decline in deposits was at Bank of China, which does the most foreign-exchange business and faces slower inflows of overseas currency as expectations for gains in the yuan weaken, the newspaper said.
“Officials may be more flexible in implementing some macro-prudential measures such as the loan-to-deposit ratio if capital outflows continue and liquidity tightness worsens,” Chang said. In the meantime, “another reserve ratio cut before the year-end or the Chinese New Year is likely.”
China’s November trade surplus shrank from a year earlier and foreign direct investment fell for the first time in more than two years.
Outstanding yuan deposits at banks fell in October as report from the central bank indicated capital outflows. While deposits increased in November, the gain was the smallest in a year.
Total yuan lending by the big four accounted for about 61 percent of their total deposits at the end of October, based on data from the central bank. By contrast, for lenders with total assets of less than 2 trillion yuan the ratio stood at 83 percent.
“If the loan-to-deposit ratio is not to be relaxed, loan growth is unlikely to accelerate immediately, even with reserve ratio cuts,” wrote Hong Hao, global equity strategist at China International Capital Corp, in an e-mailed note today.