China Makes Reserve Requirement Cut for Those Lending to Small Firms

(Beijing) — China’s central bank on Saturday said it will cut the amount of cash that some banks must hold as reserves beginning next year in a bid to encourage lending to small businesses and the agricultural sector.

The People’s Bank of China said it will cut the RRR by 0.5 percentage point to 1.5 percentage points for those banks that meet certain requirements for lending to small business and the agricultural sector.

Banks whose loans to small, private business and the agricultural sector account for 1.5% of their outstanding or newly added loans for the previous year will be qualified for the 0.5 percentage point RRR cut. A 1.5% cut will be applied to banks whose lending to the targeted group accounts for more than 10% of their outstanding or newly added loans, the People's Bank of China said.

All medium and large-sized banks that meet such requirements will be qualified for the reserve ratio cut starting in 2018, said the central bank.

A central bank official said the targeted reserve ratio cut is made to support the development of “inclusive” financial services and to optimize the credit structure. The central bank will stick to "prudent and neutral" monetary policy and allow moderate credit growth to support economic growth and reform, the official said. 

Contact reporter Han Wei (weihan@caixin.com)