HONG KONG (MarketWatch) — Like a forgiving parent returning a kid’s favorite toy as a reward for good behavior, the Chinese central bank has reportedly reversed a punitive increase in reserve requirements on some lenders for avoiding a lending spree.
The move, reported in both Chinese and international media, boosted Chinese banking shares Wednesday.
But analysts caution that the central bank’s decision to cut lenders some slack for practising restraint shouldn’t be construed as a change in its policy stance, and that more tightening measures, including broad increases in the reserves that banks must keep with the central bank, were in the pipeline.
“We don’t see this latest move [as reflecting] a softening of China’s tightening stance,” said Frances Cheung, senior strategist for Asia excluding Japan at Credit Agricole.
“Precisely because there is a dynamic differentiated [reserve requirement ratio, or RRR] system in place, [the] reserve requirement will be adjusted from time to time, according to lending behavior of individual banks.
The aim to control loan growth is obvious,” she said.
Long campaign against easy loans Policy makers have made concerted efforts to restrict bank credit in China for several quarters on fears that loose lending standards might lead to an increase in bad loans and put the financial system at risk.
As part of those efforts, the People’s Bank of China has recently begun to adjust banks’ reserve requirements on a case-by-case basis, slapping banks that lend aggressively with an increase in their RRRs.
However, the latest reported instance of scaling back a previous increase in the RRR marks the first time the central bank has reduced this rate after it began tightening in the current policy cycle.
While the PBOC hasn’t officially announced such a move, the Chinese financial
publication 21st Century Business Herald, as well as Reuters, have cited unnamed sources as confirming the central bank’s reduction in the RRRs. Both reports said the sources declined to name the individual banks affected.
Cheung, as well as several other analysts, have said the central bank may have to raise banks reserve requirements soon to drain excess liquidity from the banking system.
