Bloomberg

Beijing

China’s central bank is considering changing the way it calculates banks’ loan-to-deposit ratios, a government official briefed on the matter said, signalling efforts to boost credit as the economy falters.

Savings that banks hold for non-deposit-taking financial institutions may be classified as deposits, the person said, declining to be identified as he’s not authorised to speak publicly about the matter. Money that banks lent to such institutions would be classified as loans, according to the official. The changes may take effect on January 1.

Chinese banks are allowed to lend a maximum of 75% of deposits. China International Capital Corp says that loan-ratio rule changes could see an extra 7tn yuan ($1.1tn) of money classified as deposits, 14 times more than the likely boost to loans. That would increase lenders’ ability to extend credit.

Such moves “could help to improve credit allocation across banks and regions,” Chang Jian, chief China economist at Barclays in Hong Kong, said in a note yesterday. At the same time, “we do not think this will change the fundamental picture facing the Chinese economy,” she said.

Calls and faxes to the PBoC seeking comment weren’t immediately answered.

Premier Li Keqiang said on Wednesday at a meeting of the State Council that the government will make the loan-to-deposit ratio more flexible and improve loan management. Policy makers are seeking to cut funding costs and feed credit into the economy as manufacturing growth weakens and economists predict the nation’s slowest expansion since 1990.

In June, the China Banking Regulatory Commission loosened loan-to-deposit calculations through changes that related to negotiable certificates of deposit and some credit extended to small enterprises and the rural sector.

The central bank may include 500bn yuan of interbank loans to non-deposit taking financial institutions in the revised calculations, CICC’s Beijing-based analyst Huang Jie wrote in a note yesterday. Banks’ loan-to-deposit ratio may drop to about 60% to 61% from 64.2% at the end of September, Huang estimated.

A change in the calculations to include interbank deposits could have the side-effect of cuts in banks’ reserve requirements, Huang said. Extra deposits mean banks have to set aside extra reserves. The central bank may need to cut reserve ratios two or three times to offset the impact and maintain liquidity, Huang said.