China Cuts Reserve Ratios for 379 Agribank Branches

China boosted rural credit by cutting reserve ratios for more branches of Agricultural Bank of China Ltd., the nation’s third-biggest lender by market value.

A total of 379 outlets in Heilongjiang, Henan, Hebei and Anhui will be covered in a trial that previously applied to 563 branches in eight provinces, the People’s Bank of China said on its website yesterday. Effective March 25, the ratio will fall by 2 percentage points for 565 branches, a move that the central bank said will free up 23 billion yuan ($3.6 billion).

The ruling Communist Party has pledged to fine-tune economic policies as needed as a cooling real-estate market and faltering export demand limit the nation’s expansion. Mining company BHP Billiton Ltd. said March 20 that China’s steel output growth has flattened, adding to concern that a slowdown may deepen.

“This is a marginal and targeted easing aiming at encourage more lending in rural areas and to smaller businesses,” said Lu Ting, a Hong Kong-based economist at Bank of America Corp.

The Shanghai Composite Index fell 0.4 percent as of 10:38 a.m. local time after a preliminary reading for a purchasing managers’ index pointed to a deeper contraction in manufacturing this month.

Scale of Change

The reserve-ratio level for the nation’s largest lenders stands at 20.5 percent after a cut in February.

Yesterday’s move is the central bank “further improving the use of differentiated reserve ratios,” it said in the statement. The scale of the change compares with an across-the-board reserve-ratio cut for all banks of 50 basis points, which would usually release about 350 billion yuan into the financial system, according to Lu.

Agricultural Bank, established in 1979 to serve farmers and less affluent rural areas, had 23,648 outlets nationwide by the end of the first half of last year.

China’s economy grew 8.9 percent in the final three months of 2011 from a year earlier. Agricultural Bank is due to report fourth quarter profit today, with a Bloomberg News survey of analysts indicating a 17 percent gain to 28.8 billion yuan.

China’s lenders face the risk of increased bad loans after boosting credit in a stimulus program that countered the effects of the global financial crisis.

— With assistance by Yanping Li

(Updates with stocks in fifth paragraph.)
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