The State Council, China's cabinet, moved to scrap a rule that caps lending by commercialbanks at 75 percent of their deposits, a measure that will increase the supply of cash in the financial system.
It will propose amending the nation's banking law to make the limit a ratio used for referencerather than a regulatory statute, according to a statement posted to its website on Wednesday.A system will be set up to monitor the liquidity of banks based on the ratio, it added. Changes tothe law need to be approved by the Standing Committee of the National People's Congress. Premier Li Keqiang is trying to reshape a Staterun banking industry that has $29 trillion ofassets, almost twice the amount of its United States counterpart. Deregulating interest rates andeasing regulatory controls are part of his efforts to support long-term growth by giving markets abigger role in the economy.
The shake-up is coming five years after the nation completed the stock market listings of the lastof its dominant big-four banks, which include the Industrial & Commercial Bank of China. The lawlimiting lending to 75 percent of deposits has been in place since 1995.
While the loan-to eposit level for the industry was 66 percent in March, and the China BankingRegulatory Commission eased the requirement last year by changing the method of calculation,it remains a constraint for some listed lenders. Bank of Communications Co's ratio was about 74percent in March, while China Construction Bank Corp's was 72 percent.
Wu Xiaoling, a former central bank deputy governor, has argued that the ratio and State-imposedquotas for lending have undermined banks' abilities to manage their assets and liabilities, andled to distortions such as the use of illegally obtained deposits to boost lending.
In November, Li said that the government would make the ratio more flexible, while the bankingregulator said it was seeking to revise the banking law.
The central bank has sought to reduce some of the stresses in the financial system with threereductions to the benchmark interest rate since November and two cuts in lenders' reserverequirements this year.
From: China Daily
