Deposit Reserve Ratio Adjusted Higher

China’s central bank is said to raise deposit reserve ratio of some large Banks in a bid to curb their loaning speed.

A top executive responsible for capital at a large state commercial bank confirmed the report in an interview on October 11, adding that the People’s Bank of China did orally require the nation’s Big Four state commercial lenders including Industrial and Commercial Bank of China (ICBC, SHSE: 601398, and SEHK: 1398), Bank of China (BoC, SEHK: 3988 and SHSE: 601988), China Construction Bank (CCB, SHSE: 601939, and SEHK: 0939) and Agricultural Bank of China Ltd. (ABC, SHSE: 601288 and SEHK: 1288) as well as two joint-stock commercial lenders namely China Merchants Bank (CMB, SHSE: 600036 and SEHK: 3968) and China Minsheng Banking (SHSE: 600016) to raise their deposit reserve ratio up by 50 basis points. The term is two months and related capital should be handed in within this week.

It should be too fast loaning pace of those Banks in September that urged the center bank to make such a decision and according to an industry observer, the loans commercial Banks in the country granted last month is expected to hit about CNY 600 billion.

But in the opinion of Lu Zhengwei, the chief economist with Fujian-based Industrial Bank (SHSE: 601166), the decision is also closely related to the nation’s soared funds outstanding for foreign exchange. Renminbi has continued appreciating since the nation announced renminbi revaluation this June and on October 11, the central parity of renminbi against the US dollar reached 6.6732, a record high since the nation firstly triggered renminbi revaluation in 2005. Under such an environment, the funds outstanding for foreign exchange hit a new high of CNY 243 billion in August, exceeding the total of the nation’s trade surplus and FDI in the month. “The figure is expected to touch CNY 300 billion in September,” predicted Shi Lei, a top executive responsible for investment with fixed yield at the securities unit of Ping An Insurance (Group) Company of China, Ltd. (SEHK: 601318 and SEHK: 2318). Besides, the size of capital on the open market that is going to mature this month is huge.

In order to control liquidity and curb inflation expectation, China raised the deposit reserve ratio of the nation’s depositary financial institutions up by 0.5 percentage points on January 18, February 25 and May 10 this year, each.