Move aimed at bolstering lending capacity of banks
China's State Council on Wednesday approved an amendment draft which removes a 75 percent loan-to-deposit ratio limit on Chinese commercial banks, expanding banks' lending ability. The loan-to-deposit ratio will no longer be a statutory indicator but a liquidity-monitory indicator, and removal of the ratio limit will help to improve financial institutions' lending ability to agriculture and small and micro-sized businesses, read a statement posted on the central government's website.
The amendment draft will be submitted to the National People's Congress Standing Committee, China's top legislature, for review, the statement said.
"It is reasonable to lift the ratio limit since there are other indicators which can be used to supervise banks' lending, such as the capital adequacy ratio," Xu Gao, chief economist with Everbright Securities, told the Global Times on Wednesday.
The loan-to-deposit ratio has loopholes because banks can lend through other ways such as buying bonds, Xu noted.
The lifting of the loan-to-deposit ratio limit will be positive for the banking industry in the long run, but it may not lead to a surge in lending because there is a lack of big borrowers given the sluggish economic growth and weakness in the real estate sector, Li Qilin, an analyst at Minsheng Securities, told the Global Times on Wednesday.
China's banking regulator is also expected to allow commercial banks to conduct brokerage business as early as the second half of this year, Beijing-based Securities Daily reported Wednesday.
"Mixed operation is going to be a trend in China's financial sector, allowing banks, securities companies, insurance companies and other institutions to offer multiple financial services because the accelerated interest rate liberalization requires more freedom of operation in the financial sector," Xu said.
Chinese commercial banks have been long expecting the slackening of barriers for brokerage businesses. Zhang Xiaojun, spokesman for the China Securities Regulatory Commission, said in March that the regulator is working to allow banks to apply for securities brokerage licenses.
The current Securities Law requires that securities, banking, trust and insurance firms should be operated and regulated separately. And the Commercial Banking Law also does not allow commercial banks to do trust investment and brokerage business.
In spite of this, some financial conglomerates including CITIC Group Corp, Ping An Insurance (Group) and China Everbright Group have already established separate entities that hold a securities brokerage license to do related business.
"Commercial banks can improve their overall competitiveness by providing more comprehensive financial services to their clients," Xu said. "The brokerage business is expected to become commercial banks' new profit growth point."
Data from the Securities Association of China showed that China's securities firms realized a total net profit of 96.55 billion yuan ($15.55 billion) in 2014, up from 44.02 billion yuan in 2013.
Xu said commercial banks may bring fierce competition to the securities brokers since banks have larger number of customers and more sufficient funds than securities companies do.
