China scraps reserve requirements for offshore banks' domestic CNH deposits - sources

A China yuan note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration

SHANGHAI (Reuters) - Rules requiring foreign banks to put aside reserves for offshore yuan deposits in China have been lifted, three sources with direct knowledge of the matter said on Sunday, in an apparent move to improve liquidity.

The change came into effect last Friday, one of the sources said, declining to be identified.

The authorities imposed the rules on financial institutions in January 2016 to stem speculation in the yuan and manage money flowing in and out of the country last year, when the Chinese currency lost 6.5 percent of its value against the dollar.

Foreign financial institutions had to set aside reserves for offshore yuan deposits held on the mainland with yuan clearing banks. The amount set aside was the same as that required of yuan deposits in China.

The normal reserve requirement ratio (RRR) rate in China is 17 percent for large banks and 15.5 percent for small banks.

But the reserve requirements for onshore yuan deposits placed in yuan clearing banks by offshore institutions will not be affected.

The People’s Bank of China (PBOC) did not have any immediate comment.

Sources told Reuters late on Friday that the PBOC would scrap reserve requirements of 20 percent for financial institutions settling foreign exchange forward yuan positions with effect from Monday.

Reporting by Reuters Newsroom; Editing by Jacqueline Wong