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Analysts concerned new liquidity rules may hinder banks' growth
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THE China Banking Regulatory Commission’s new measures to regulate liquidity risk in the banking sector are likely to hinder the banks’ growth, according to analysts.
All commercial banks on China’s mainland are required to hold a growing number of liquid assets to fend off short-term liquidity disruptions. Banks have to meet the liquidity coverage ratio target of 60 percent by the end of this year, and it will be raised by 10 percentage points each year until it reaches 100 percent by the end of 2018, the CBRC said yesterday.
"This bodes ill for the growth outlook," said Dariusz Kowalczyk, senior economist at Credit Agricole Corporate and Investment Bank, in a research note today. "It is likely to lead to higher bank demand for liquid products and further liquidity tightness. It will also reduce banks’ scope for lending."
The financial regulators stepped up regulations on the liquidity risk of banks since a severe credit squeeze hit the market in June, when major money market rates soared to record highs.
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