Loan to Deposit Ratio Eased For Some Loans

Mainland China banking regulator to ease loan-to-deposit ratio

The mainland's banking regulator will relax how it calculates its loan-deposit ratio, tiptoeing around more arduous changes to the banking law while delivering a light boost to the economy.

Starting tomorrow, the China Banking Regulatory Commission will remove three types of loans from the regulation's scrutiny, including funds lent under the central bank's relending facility to support small enterprise and commercial bank loans from international financial institutions or foreign governments, the regulator said on its website.

The ratio limits outstanding loans to no more than 75 per cent of their deposits. A change in the regulation was expected, analysts said. In recent weeks, officials at CBRC have noted the positive impact a small adjustment to the law could have.

"This has been well accepted and well predicted by the market," said Lu Ting, the head of China research at Bank of America Merrill Lynch. "The impact will be quite small."

In the post-2008 stimulus plan, China forced the banks to lend. As with the lifting of buying restrictions that favor speculators, easing credit rules doesn't do much to change the trend once a downtrend is underway. Banks don't want to lend when credit conditions are worsening. These types of policy changes can nudge the trend when it is going in a favorable direction, but do next to nothing if the trend is moving the other way.