BEIJING: China’s central bank this year is extending a programme that allows financial institutions that support rural finance and small enterprises to apply for a lower required level of cash reserves, three sources said on Monday. The People’s Bank of China (PBOC) in 2014 launched a programme that lets banks apply for a lower reserve requirement ratio (RRR) – the amount of cash they must hold as reserves – if they meet certain criteria for lending to the agricultural sector and small companies. PBOC is now assessing banks’ 2016 loan books, with those meeting requirements eligible for the lower RRR, the sources said, as the central bank offers an incentive for banks to lend to underserved sectors of the economy. The targeted RRR cuts were implemented or extended in February in past years. In February 2016 the central bank said it would cancel the preferential treatment for banks that didn’t meet standards but maintain it for most.
The standards require that minimum capital adequacy ratios are met, as well as mandating 50 percent of new loans in the last year were to the agricultural sector, while half of all outstanding loans were made to small companies. “Under the routine assessment, eligible banks can decide whether or not to apply (for the lower RRR)”, said a source at a regional branch of the PBOC. An executive at a privately run bank said the bank has applied but not yet received approval from PBOC. Officials at the PBOC weren’t immediately available for comment. China has modestly tightened policy in recent months by raising key money rates, though overall credit growth remains strong, hitting an all-time high in January.
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