PBOC Expands Reserve-Ratio Cuts to Aid Smaller Companies

China’s central bank extended a reserve-requirement cut to some national lenders including China Merchants Bank Co. and Industrial Bank Co. as officials try to support growth without unleashing broader stimulus.

The People’s Bank of China approved a half percentage-point cut for Industrial Bank and China Minsheng Banking Corp. also got a reduction, spokesmen said in separate telephone interviews today. Merchants Bank confirmed a half-point cut in a stock-exchange statement.

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. While the PBOC said today that it hadn’t widened the scope of a reserve-ratio cut announced on June 9 to help support small businesses and agriculture, national lenders weren’t mentioned in that statement.

“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 Corp. banking analysts Huang Jie, Mao Junhua and Zhu Jie said in a report distributed earlier today. They added that China Merchants had also been included.

Deposit Base

Industrial Bank, Minsheng Bank and Merchants Bank had about 7 trillion yuan ($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. Bank of Ningbo Co., a city commercial bank that also confirmed it had received a reserve-ratio reduction, had deposits of 255.3 billion yuan.

On June 9, the central bank said the cut, effective June 16, applied to about two-thirds of city commercial banks, 80 percent of non-county level rural commercial banks and 90 percent of non-county level rural cooperative banks. The criteria for the reduction included banks’ levels of lending to “small and tiny businesses.”

In a statement today, the PBOC said that the cut applied to all banks, including state commercial banks, joint-stock banks, city commercial banks and rural commercial banks that met the relevant requirements. Excluded were lenders that got an earlier cut in April.

“China’s neutral monetary policy is leaning towards relaxation,” Ding Shuang, senior China economist with Citigroup Inc. in Hong Kong, said today. At the same time, “the central bank is still not willing to send a strong signal of policy easing,” he said.

Shares Climb

Minsheng Bank’s share price gained 3.1 percent in Shanghai and Merchants Bank increased 1.7 percent. Industrial Bank gained 1.6 percent and Bank of Ningbo rose 0.5 percent.

China’s economy is set to grow 7.3 percent this year, the weakest pace since 1990, according to the median estimate in the latest Bloomberg News survey of economists. Pick-ups in industrial output and retail sales suggest the economy is stabilizing on so-called “mini stimulus” measures from the government.

“Policy easing has become a significant macroeconomic factor,” Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, said in a note today. He sees more loosening helping to to propel growth to 7.5 percent in the third quarter and 7.6 percent in the fourth quarter.

The extended reserve-ratio cut 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 didn’t give those numbers.

— With assistance by Xin Zhou, and Jun Luo

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