Unleash 7 Trillion in Credit: Abolish the Deposit Ratio

Chinese media is buzzing with rumors the deposit ratio may be abolished when the commercial banking law comes under its first revision since 1995 later this year.

1995 promulgated the "Commercial Bank Law" in operation for 20 years the first time on the occasion of the upcoming large-scale revision. It is said that the CBRC has set up a "Commercial Bank Law" revision team, led by the China Banking Regulatory Commission Regulatory Affairs, and transferred some of the commercial bank, will promote the revision of "Commercial Bank Law" by year, for a proposal by the end of 2015 draft.

　　It is reported that the team is to conduct research and comprehensive demonstration on "Commercial Bank Law" to modify the place, are also being conducted to seek amendments, included amendments necessary regulatory alignment and other basic work. It is worth noting that the long criticized deposit ratio limit may be canceled in this revision.

...　But now, as interest rates continue to promote market-oriented, end liabilities of commercial banks have become more diversified sources, not limited to the deposit; assets end funds are becoming increasingly diverse, and have more than just loans. Regulatory coverage is not enough deposit ratio, the risk is not high sensitivity increasingly drawbacks. Industry insiders say, with the ratio of deposits and loans to manage the liquidity of commercial banks, commercial banks do not reflect the real situation of liquidity. Especially the medium-sized banks, the balance has been very complicated business, loan-deposit ratio is more obvious disadvantage.

　　Meanwhile, in recent years, domestic commercial banks are facing a variety of difficulties, in addition to profit growth fell sharply, rising non-performing loans than commercial banks also face slowdown deposits, increased funding costs dilemma in this context industry assessment for canceled loan ratio increasing. Insiders said that the current commercial bank loan ratio Management System main drawbacks include: deposits increased competition, leading to the high price of credit; increasing the shadow banking commercial bank, increasing the risk of hazards; deposit ratio does not accurately reflect term assets and liabilities ratio and liquidity position; and the impact of the effectiveness of monetary policy.

　　It is reported that China Banking Regulatory Commission has canceled the loan-deposit ratio alone emergency amendments submitted to the Legislative Affairs Office of the State Council Legislative Affairs Office after the trial over, and then reported to the NPC Financial and Economic Committee for consideration. But the abolition deposit ratio, does not mean that the bank's liquidity unfettered. It is reported that a similar representation will be "consistent with the regulatory requirements of deposit-loan ratio" is defined as 75 percent longer rigid, but deposit-loan ratio will remain as an important but relatively pro and monitoring indicators.

Abolishing the deposit ratio would theoretically allow Chinese banks to increase lending by 7 trillion yuan. If banks are unwilling to lend though, lifting the deposit ratio would have little impact beyond easing the need for deposits, which could result in a lower cost of capital.

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