Caixin
Apr 03, 2020 07:36 PM
FINANCE

China Cuts Banks’ Reserve Requirements, Releasing $56 Billion

What’s new: China’s central bank cut the amount of cash banks need to hold in reserve for the third time this year, releasing about 400 billion yuan ($56.4 billion) of liquidity into the financial system.

The reserve requirement ratio (RRR) for small and midsized lenders, including rural banks, village banks and city banks which only operate in the region where they are registered, will be lowered by 1 percentage point, the People’s Bank of China (PBOC) announced on its website Friday (link in Chinese). The adjustment will be implemented in two stages — April 15 and May 15.

The PBOC said it will also cut the interest rate it pays on the excess reserves banks hold at the central bank to 0.35% from 0.72% from April 7. This is money lenders voluntarily keep at the PBOC on top of the amounts required for the RRR. The reduction aims to encourage banks to withdraw the funds and lend them out.

What’s the background: China’s policymakers have vowed to step up financial support to help the economy recover from the impact of the coronavirus epidemic. The government is especially concerned about helping small and midsize businesses that don’t have the resources or access to loans that larger companies have and are at greater risk of going under.

The PBOC’s announcement follows a meeting of the State Council, China’s cabinet, on Tuesday that agreed to make further targeted RRR cuts. It also approved an increase of 1 trillion yuan ($141 billion) in relending and rediscount quotas to banks, to provide more low-cost funds for them to lend to small businesses.

Policymakers have also told banks to go easy on companies and individuals who have missed payments on their loans, and have cut taxes and social insurance contributions for some businesses.

Quick Takes are condensed versions of China-related stories for fast news you can use. To read the PBOC’s Q&A on the cut in Chinese, click here.

Related: State Council Announces More Cuts to Banks’ Reserve Requirements

Contact reporter Guo Yingzhe (yingzheguo@caixin.com)

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