China’s Banking Regulator Moves To Ease Credit To Small Businesses8 June, 2011, 16:31. Posted by Zarathustra
Tags: Banking, China Banking Regulatory Commission, Credit Crunch, Economy
Amid increasingly clear signs of a “credit crunch” in China, the regulators may be moving to ease the situation for small- and medium-sized businesses.
Dong Tao of Credit Suisse point us to the latest circular from the China Banking Regulatory Commission, which encourage lending to small- and medium-sized businesses. Loans to small- and medium-sized businesses which are smaller than RMB5 million can be seen as retail lending. The loan-to-deposit ratios requirement of 75% will also be relaxed for these loans.
This is the first move from the Chinese banking regulators in addressing the unusually tight credit environment for small- and medium-sized businesses, as I have discussed numerous times recently. As pointed out yesterday, we are indeed seeing the situation deteriorated quite markedly, and many small businesses in China are now hung by a thread. This caught the Chinese policy makers in the middle as to what to do with this tight monetary situation, especially as inflation remains pretty high.
Dong Tao, in his note, said that the easing to the small- and medium- sized businesses is at best a fine-tuning, not downright monetary easing. In his own words:
While this measure may help ease the extremely tight liquidity condition among the SMEs, we do not perceive it as a signal of monetary easing. The measure should be viewed as a ‘fine-tune’ on monetary policy instead, in our opinion. The People’s Bank of China has raised the reserve requirement ratio by 550 bp since the beginning of last year. The drain in liquidity has been aggravated by the fact that banks have kept maximum credit access to their best customers, i.e., large SOEs, while cutting smaller companies off from their lending list.
Dong Tao, who is among the more cautious China Economist on the street right now, still expects more interest rates and reserve requirement ratio hikes in the coming months as inflation remains high, and the government does not want to see any more upside surprises as far as inflation and property market transactions are concerned.