Chinese Central Bank Hopes to Unleash 280 Billion Yuan with Targeted Reserve Ratio Cuts

The People’s Bank of China (PBOC) has just launched a series of cuts to the required reserve ratio of smaller rural banks with a view to shoring up financial inclusion in regional areas.

The cuts will be implemented in three separate stages on 15 May, 17 June and 15 July, targeting small and medium-sized lenders that provide their services to regional and rural county markets.

Rural village commercial banks that operate both in their own county-level administrative areas and via branches in other county-level administrative areas will qualify for the cuts, as long as their assets are less than 10 billion yuan.

The cut will see their required reserve ratio brought in line with that for rural village credit societies, which currently stands at 8%.

Around 1000 county-level rural commercial banks are expected to qualify for the beneficial policy, releasing around 280 billion yuan in long-term funds.

PBOC announced on 15 May that the initial the cut is expected to unleash around 100 billion yuan in funds.

Sun Guofeng (孙国峰), head of PBOC’s monetary policy department, said on 10 May that the Chinese central bank’s new framework for required reserve ratios consists of “three grades and the two benefits” (三档两优).

The three grades refers to a first grade required reserve ratio of 13.5% for large-scale banks, a second grade required reserve ratio of 11.5% for medium-sized banks, and a third grade ratio of 8% for smaller banks.

The “two benefits” refers to financial inclusion targeted reserve cut policies and financial inclusion ratio policies.

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