OREANDA-NEWS. May 06, 2014. Q: Does this measure of lowering the reserve requirement ratios for county-level rural commercial banks and rural cooperative banks signal a loosening or a shift in the monetary policy?

A: The PBC has lowered the reserve requirement ratios for county-level rural financial institutions to implement the principles adopted at the State Council Executive Meeting and those outlined by Vice Premier Ma Kai at his speech at a national teleconference for exchanging experiences on improving rural financial services, as a structural adjustment measure to step up financial sector support to the agricultural sector, rural area, and farmers, to guide greater efforts in structural adjustment to increase rural credit input. This does not represent a shift in the stance of monetary policy and will not affect the overall liquidity in the banking system as the stance of sound monetary policy is maintained. Going forward, the PBC will continue to implement a sound monetary policy, keep liquidity within an appropriate range and achieve reasonable growth of money, credit and the all-system financing aggregate.

Q: Why are county-level rural commercial banks and rural cooperative banks included in this adjustment but not other categories of rural financial institutions?

A: Compared with the rural commercial banks and rural cooperative banks located in the cities, the rural commercial banks and rural cooperative banks incorporated at the county level have higher proportion of agro-lending and supported the agricultural sector and farmers with greater strength. A structural adjustment in the reserve requirement ratio targeting these county-level rural financial institutions will send out a clearer signal in the agricultural supporting policies, increase the county-level rural financial institutions’ financial strength and their capacity to support the rural area, agricultural sector and farmer, provide a positive incentive to guide a larger portion of credit resources to be allocated to agricultural sector, the rural area, farmers and counties, and enhance the financial institutions’ capacity to serve the real sector.

Q: How do we look at the links between this policy and the PBC’s previous policies in relation to reserve requirement designed to support the development of agricultural sector, rural area, and farmers?

A: The PBC has used differentiated reserve requirement policy to beef up financial sector support to the development in agricultural sector, rural area, and to the farmers. Starting from 2003, the rural financial institutions have been subject to required reserve ratios lower than that applicable to other categories of financial institutions. In 2010, a policy was adopted to encourage financial institutions incorporated at the county level to lend a certain percentage of new deposits to local borrowers, whereby rural financial institutions incorporated at county level and located in counties will enjoy a required reserve ratio one percentage point lower than the required reserve ratio applicable to their peers. This latest move to adjust the reserve requirement ratio of rural financial institutions incorporated at county level is a further step to provide incentives and guide credit resources to flow to rural area, agricultural sector, farmers and county level borrowers and will be combined with the afore-mentioned 2010 policy to cut the reserve requirement ratio for those eligible rural financial institutions that have lent a certain percentage of new deposits to local customers. As a result, the rural commercial banks and rural cooperative banks incorporated at county level will be subject to reserve requirement ratio of 16 percent and 14 percent respectively, and those rural commercial banks and rural cooperative banks that have lent a certain percentage of new deposits to local customers will be subject to reserve requirement ratio of 15 percent and 13 percent respectively.