China will continue to implement lower required reserve ratios for small banks that lend to small businesses and will encourage banks to issue special bonds to raise funds for such lending, China's State Council said on Wednesday.
The announcement, which comes as China tweaks policy to support its economy, may not signal an imminent cut in required reserves (RRR) for small lenders. In October, China also said it would continue to implement lower reserves for such banks, but didn't make any new cuts until the end of November, when it unveiled an across-the-board reduction for all banks.
Analysts predict that such a cut will come in the coming months. "RRR for small banks are already lower than big banks, and it's difficult to cut RRR just for small banks. There could be a cut in RRR for all banks in February or March," said Hua Zhongwei, economist at Huachuang Securities in Beijing.
The decision is part of a broader campaign by Beijing to help cash-starved small businesses, including lower taxes and increased credit support.
"Small- and micro-businesses are facing rising costs as well as difficulties obtaining credit, and they need greater support," the cabinet said in a statement published on the government's website (www.gov.cn). China defines as a small business any industrial firm that reports less than 20 million yuan ($3.17 million) in annual sales.
The Wednesday meeting of the State Council, or China's cabinet, is the second time China's top leaders have stressed their support for these firms in five months. A continued lower RRR for small banks fits in with Beijing's flexible policy stance and its targeted monetary policy easing in 2012 - the People's Bank of China (PBOC) has refrained from raising the overall RRR over the last two months.
According to the latest Reuters poll of 24 banks and brokerage houses, PBOC is expected to cut RRR by 50 basis points in February. The cabinet said China will lower the threshold for private, foreign investors and international organisations to invest in small credit firms and small lenders. China will also encourage small firms to publicly sell shares, according to the statement.