CBRC alters loan to deposit ratio

The China Banking Regulatory Commission has adjusted its rules for calculating the "loan-to-deposit" ratios for commercial banks. That's in an attempt to release more cash into the economy. The CBRC says the changes will take effect on Tuesday.

The loan to deposit ratio is the proportion of a bank's lending and saving structure. The ratio is used to measure a commercial bank's risk tolerance level. Commercial banking law requires that the ratio be kept below 75 percent. That means lending can't go above three quarters of the bank's savings.

China's banking regulator has adjusted the calculation criteria of the ratio so that banks can step up lending while keeping the risk management structure intact. That will ensure that more funds are put into the real economy.

"We followed rules not to reduce risk management effect of loan-to-deposit ratio, and it has to be easy to implement. Our aim is to improve supervisory indexes. This will help inject more credit into the real economy, especially in the agricultural sector, and small-and-micro companies." Li Wenhong, Deputy Director of Research Bureau, CBRC said.

The CBRC broadened its definition of deposits by adding in items such as large negotiable certificates of deposit into the denominator. Also, foreign currencies will be left out of the calculation, leaving only RMB as the base. Experts say the changes will ease the pressure on banks to attract more cash deposits at the end of every quarter in order to meet loan-to-deposit requirements and dress up their financial statements.