China to provide $81-bn liquidity to five big banks: Reports
17 September 2014
China is providing 500 billion yuan ($81 billion) of liquidity to its five biggest banks as premier Li Keqiang increases stimulus to support economic growth, a news report said.
According to news website Sina.com, which cited banking analyst Qiu Guanhaua at Guotail Junan Securities, the People's Bank of China, started providing the lenders with 100 billion yuan each through standing lending facilities with a three month tenor, Bloomberg reported. The process would be completed by the bank today, it added.
"This is like 'printing money' as base money is created," Shen Jian-guang, Hong Kong-based chief Asia economist at Mizuho Securities Asia, said in an e-mail. "The immediate impact is similar to an RRR cut of 50 basis points to all banks."
RRR is the required reserve ratio of the banks and cutting it increases the amount they had available to lend.
The move showed the determination of the government to support the economy even using broad-based stimulus that might worsen the country's mounting debt situation. A property slump has left premier Li's target of about 7.5 per cent gross domestic product growth this year in jeopardy.
Yuan forwards erased losses and the iShares China Large-Cap ETF rose 0.8 per cent to $40.71 in afternoon trading in New York, picking up after falling 1.2 per cent earlier.
Meanwhile, global shares and commodity prices were up on the reported move, although local money market rates increased on the day, reflecting the tight liquidity situation, Reuters reported.
According to The Wall Street Journal, which cited an unnamed Chinese bank executive, the People's Bank of China (PBOC) was pumping in 100 billion yuan each into China's top five banks via standard lending facility in the form of 3-month loans.
A PBOC spokesman told Reuters, the bank would make an announcement when it had any news.
The central bank might be concerned over an expected tightening in liquidity ahead of the quarter-end, as also a series of upcoming initial public offerings could spark a sharp increase in short-term rates. This was seen in June last year, when rates surged to around 30 per cent and roiled global markets, according to traders.
According to analysts, the amount was equivalent to a 50-basis-point cut to banks' reserve requirement ratio – the level of cash commercial lenders need carry on deposit with the PBOC. An RRR cut would, however, have a longer-lasting and larger impact across the economy.
"We think the latest SLF is mainly aimed at providing liquidity to pre-empt potential liquidity shortages in the banking system in the coming weeks," Jian Chang, China economist at Barclays Capital in Hong Kong, said in a research note.