China Banks Seen Profiting From PBOC's Reserve Ratio Cut

- Apr 18, 2018-

China’s banks stand to make higher profits from the government’s move to fine-tune monetary policy by slashing their reserve requirements. Banking shares jumped.

The resulting drop in funding costs will boost the net interest margin of listed Chinese banks by 0.9 basis point and lift their profits by 0.6 percent, according to analysts at China International Capital Corp.

The People’s Bank of China (PBOC), the central bank, said Tuesday it will lower the reserve-requirement ratio on large commercial lenders and some other banks by 1 percentage point, effective April 25. 

The move will help banks to repay 900 billion yuan (US$143 billion) of outstanding medium-term lending facility loans they borrowed from the central bank, according to the PBOC. 

The move is expected to unleash another 400 billion yuan of liquidity, which can be used to raise lending.

Amid a multi-year effort to cut financial risk and curb credit growth, the PBOC has been adjusting liquidity conditions and guiding market rates higher without raising broader borrowing costs. Even as the economy is forecast to slow this year, policymakers have given little sign they’re ready to depart from their “prudent and neutral” stance.

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