(Adds details, comment from analysts)
By Aileen Wang and Koh Gui Qing
BEIJING, June 30 China is relaxing the rules
used for calculating the amount of deposits that banks can
re-lend as loans, an attempt hailed by some economists as the
latest move to stimulate growth in its cooling economy.
As of July 1, selected loans to small firms and the farm
sector will be excluded from the computation of banks'
loan-to-deposit ratio (LDR), the China Banking Regulatory
Commission said in a statement on its website.
The definition of deposits will also be broadened to include
items such as large negotiable certificates of deposit issued by
banks to companies and savers, the regulator said.
The new LDR calculation will only cover loans and deposits
denominated in yuan, while lending and borrowing made in foreign
currencies will be kept out.
By increasing banks' deposit base and removing some loans
from the calculation, China is making the LDR less onerous on
banks and allowing them to re-issue more of their deposits as
The hope is that the freed-up funds will make their way
through the economy to companies with real financing needs,
thereby lifting growth in the world's second-largest economy.
"This is another 'targeted stimulus' policy conducted by the
Chinese authorities to help the economy regain momentum in the
next few quarters," ANZ economists Liu Li-Gang and Zhou Hao said
in a note.
As a result, total lending by Chinese banks is likely to be
"significantly bigger" from the same period last year, they
Chinese laws cap banks' loan-to-deposit ratios at 75
percent, which means banks can lend no more than three quarters
of their deposits.
To meet the loan-to-deposit requirement, banks often demand
more cash at the end of each quarter and year so that they can
attract more deposits and dress up their quarterly financial
The average LDR for Chinese banks stood at 65.9 percent at
the end of the first quarter, the regulator said.
The regulator said it would work with China's legislators to
quicken the revision of the commercial banking law, which many
believe would lead to an eventual scrapping of the
loan-to-deposit ceiling for banks.
RELAXING THE DEFINITION
Hurt by unsteady global demand for its exports and
moderating domestic investment growth, China's economic growth
slipped to an 18-month low of 7.4 percent between January and
Although authorities said earlier this year that it was
alright if annual economic growth for 2014 slightly missed the
government's target of 7.5 percent, Premier Li Keqiang said in
London earlier this month that 7.5 percent was a minimum
requirement that would be met.
As a result, some economists expect China's government to
further loosen the monetary and fiscal policies in coming months
to boost activity.
Under the new rules announced on Monday, money commercial
banks received from the central bank under its "re-lending"
programme, and which was lent to small firms and the farm sector
will not be included in LDR computations.
Loans funded by bonds sold by banks with remaining
maturities of at least a year, and which bond investors have no
right to demand early repayments, can also be omitted from LDR
Lastly, loans funded by international financial institutions
or foreign governments will be dropped from the ratio as well.
As for deposits, those transferred to the local branches of
foreign banks from their parent companies with maturities of
over a year can also be included in the LDR.
Despite the changes, the regulator did not go as far as some
had hoped in revising the rules.
Some investors had speculated that China would broaden its
definition of deposits to include interbank loans when
calculating the ratio.
But that change was rejected by the regulator as it felt
interbank loans are not a steady form of income and should not
be included in the computation of the loan-to-deposit ratio,
said a source with knowledge of the matter.
The source declined to be named as she is not authorised to
speak to the media.
(Reporting by Aileen Wang and Koh Gui Qing; Editing by Prateek