China’s central bank has announced a reserve requirement easing for those banks focused on small business loaning. At 17% for big bank deposits, the current reserve requirement ratio is among the highest in the world. To compare, the US requirement falls between 3-10% depending on transaction. In a statement, “the People’s Bank of China said it would reduce the amount of reserves select banks are required to keep with the central bank by between half and 1 percentage point starting 2018.”
To decipher which banks would benefit the most from the new policy, “banks whose outstanding loans to small firms account for 10% of total loans ” would see the biggest reduction of 1%. “Based on its own calculation, the central bank said the cut will apply to all large and medium-size commercial banks and about 90% of the country’s city-level commercial banks.”
While the central bank is not known for offering monetary relief, due to the stabilization of the yuan, China’s policies may be shifting from cash injection to percentage relief. The new funds made available should free up more cash for small businesses and make China an interesting destination for small firms looking to expand in the country.