China is scrapping its longstanding loan-to-deposit ratio requirement, the latest in a series of measures to reform the country’s commercial banking sector and increase lending as economic growth slows.
The State Council, China’s cabinet, published its decision late Wednesday as part of a draft amendment to the country’s 20-year-old commercial banking law, Reuters reported.
Chinese banks are at present prohibited from lending more than 75 percent of their deposits, limiting their ability to offer loans and engage in other commercial activity.
Brokerage house China Securities Co. Ltd. has estimated that the removal of the ratio would potentially allow 16 listed banks to release up to 6.6 trillion yuan (US$1.1 trillion) in extra lending.
The move comes as the country’s economic growth continues to slow, and as the government hastens financial reforms that have included the liberalisation of interest rates and the implementation of a deposit insurance scheme.
The removal of the restriction will “strengthen ability of financial institutions to lend more to the agriculture sector and small businesses”, the State Council said in a statement.
Analysts said shares in Chinese banks — including top lenders Industrial and Commercial Bank of China Ltd. (01398.HK), China Construction Bank Corp. (00939.HK), Agricultural Bank of China Ltd. (01288.HK) and Bank of China Ltd. (03988.HK) — would likely rise as a result.
Wednesday’s draft amendment will be submitted for approval to the Standing Committee of the National People’s Congress, China’s parliament, the cabinet said, without giving a timetable.
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