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China said to raise banks' reserves to contain credit growth
By Zhang Fengming |
November 10, 2010, Wednesday
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Online Edition
Online Edition
CHINA'S top banking regulator has required the country's Big-Five banks to set aside more capital away from lending to control liquidity against inflationary risks, market watchers said today.
The 50 basis point increase will be applied to China's five biggest state-owned banks -- Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications, UOB Kayhian Investment Co said in a note today, citing "channel checks" on the order that is not released publicly.
The move will be effective from November 15, just a month after China asked the country's six big banks to freeze more capital from lending on a two-month temporary reserve requirement increase.
The new move is estimated to drain about 200 billion yuan (US$30 billion) of liquidity from the financial system, according to UOB's Shanghai-based analyst Sheng Nan.
"This move is widely anticipated by the market as consumer price index for November may exceed 4 percent," said Sheng. "Therefore, we expect any selling pressure on banking shares to be short-lived."
Unlike the previous hikes of reserve requirement ratios, the banking regulator did not specify whether the increase will be a temporary one or a permanent one. The China Banking Regulatory Commission was not available for comment today.
China is de facto tightening its monetary policy on concerns about inflation and asset price bubbles, economists said.
Xia Bin, an adviser to the central bank, said at a forum in Beijing today that monetary policy should become more "prudent" next year.
The People's Bank of China, or the central bank, surprisingly raised interest rates on October 20, the first increase in nearly three years. But even after the hike, returns on deposits still lag behind rises in living costs.
The benchmark one-year savings rate sat at 2.50 percent after the 25 basis points, or 0.25 percentage point, increase. September's consumer prices rose 3.6 percent.
China may miss the government's target for 3 percent inflation this year, the nation's top economic planning body said yesterday, two days ahead of the release of October inflation figures.
China's target of new yuan loans is 7.5 trillion yuan this year, down from a record 9.6 trillion yuan in 2009. Banks have already extended loans of 6.3 trillion yuan in the first three quarters.
The target for M2, the broadest measure of money supply, is set at 17 percent for this year.
The 50 basis point increase will be applied to China's five biggest state-owned banks -- Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications, UOB Kayhian Investment Co said in a note today, citing "channel checks" on the order that is not released publicly.
The move will be effective from November 15, just a month after China asked the country's six big banks to freeze more capital from lending on a two-month temporary reserve requirement increase.
The new move is estimated to drain about 200 billion yuan (US$30 billion) of liquidity from the financial system, according to UOB's Shanghai-based analyst Sheng Nan.
"This move is widely anticipated by the market as consumer price index for November may exceed 4 percent," said Sheng. "Therefore, we expect any selling pressure on banking shares to be short-lived."
Unlike the previous hikes of reserve requirement ratios, the banking regulator did not specify whether the increase will be a temporary one or a permanent one. The China Banking Regulatory Commission was not available for comment today.
China is de facto tightening its monetary policy on concerns about inflation and asset price bubbles, economists said.
Xia Bin, an adviser to the central bank, said at a forum in Beijing today that monetary policy should become more "prudent" next year.
The People's Bank of China, or the central bank, surprisingly raised interest rates on October 20, the first increase in nearly three years. But even after the hike, returns on deposits still lag behind rises in living costs.
The benchmark one-year savings rate sat at 2.50 percent after the 25 basis points, or 0.25 percentage point, increase. September's consumer prices rose 3.6 percent.
China may miss the government's target for 3 percent inflation this year, the nation's top economic planning body said yesterday, two days ahead of the release of October inflation figures.
China's target of new yuan loans is 7.5 trillion yuan this year, down from a record 9.6 trillion yuan in 2009. Banks have already extended loans of 6.3 trillion yuan in the first three quarters.
The target for M2, the broadest measure of money supply, is set at 17 percent for this year.
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