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Announcement:

Moody's: Chinese banks' required reserve ratio cuts will sustain monetary growth, a credit positive

 The document has been translated in other languages

24 Apr 2015

Hong Kong, April 24, 2015 -- Moody's Investors Service says that the People's Bank of China's (POBC) lowering of banks' required reserve ratios is credit positive, as it will help to stabilize economic growth, release liquidity, and sustain monetary growth.

On Monday, 20 April the PBOC lowered banks' required reserve ratio (RRR) by 100 basis points (bp). Additionally, to support lending to the agricultural sector and small and mid-size enterprises (SME), the PBOC lowered Agricultural Development Bank of China's (ADBC, Aa3 stable) RRR another 200 bp and other commercial banks that target agricultural services will receive an additional 100 bp RRR reduction. Banks with sufficient lending exposure to the agricultural sector and SMEs can also lower their RRR an additional 50 bp.

Moody's analysis is contained in its just published report "China Banks: China Cuts Banks' Required Reserve Ratio Further, a Credit Positive".

"The cuts are credit positive, as they will encourage banks to extend more credit to meet official GDP targets, and will release more liquidity into the market, mitigating upward pressure on banks' funding costs," says Moody's.

Moody's estimates that that the rate cuts will release around RMB1.2 trillion of liquidity into the market. In addition, the latest RRR cuts will help sustain monetary growth above the central bank's target, notes the rating agency.

However, the latest RRR cuts are bigger than those made previously, and come as banks' desire for yield is leading them to riskier lending. These cuts further encourage lending to the agricultural sector and SMEs, which are usually weaker credits, says Moody's.

Still, Moody's expects that as the Chinese government's current policies are more focused on preventing further declines in growth momentum and maintaining the 12% M2 monetary supply target for 2015, these cuts are unlikely to encourage a repeat of the 2009 lending binge, which was a key contributor to banks' current asset deterioration.

Moody's subscribers may access this report here: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1004756

Moody's has launched a new topic page, China -- Reform and Rebalancing, to provide a centralized source for Moody's research related to key credit issues in China as the country's rebalancing story unfolds. This report is part of Moody's ongoing coverage on this theme.

Recent Moody's publications relating to China Reform and Rebalancing include:

• Chinese Property Developers -- 2014 Results Reflect Weakened Fundamentals; Regulatory Loosening Should Ease Challenges (presentation)

• China Credit: Anti-Corruption Campaign Is Generally Positive Despite Some Event Risk

• China's Relaxation on Brokerage Account Rules Is Credit Negative for Securities Companies

• Property - China: Rated Developers' 2014 Results Reflect Weakened Fundamentals; Regulatory Loosening Should Ease Challenges

• China Tightens Control over Its Policy Banks, a Credit Positive

• China Pharmaceutical Sector: Ongoing Medical Reforms Benefit Large Chinese Pharmaceutical Companies

• Inside China -- April 2015

• China's New Deposit Insurance Scheme Is Credit Negative for Small Banks

• Chinese Property Developers Will Benefit from Relaxed Mortgage Lending Terms and Housing Tax Rules

• Chinese Banks' 2014 Results Warn of Further Adjustment Pressure Ahead

These reports are available on http://www.moodys.com/chinarebalancing.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Christine Kuo
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's: Chinese banks' required reserve ratio cuts will sustain monetary growth, a credit positive
No Related Data.
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