Banks to face tougher tasks of liquidity management
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Chinese banks will face a tougher task of liquidity management, as the high loan-to-deposit ratios of many commercial banks have prompted the banking regulator to consider further tightening measures, analysts said.
Commercial banks usually have incentives to issue more loans to reap more profits, leading to a higher loan-to-deposit ratio.
Currently, the China Banking Regulatory Commission (CBRC) requires banks to hold their loan-to-deposit ratio under the alert level of 75 percent.
Among the 13 commercial banks which have released their 2010 annual reports, 8 banks reported ratios over 70 percent, slightly below the alert line.
The 8 banks include two large, state-owned banks, Bank of Communications and Bank of China.
Zhao Xijun, a financial professor at Renmin University, said this shows that the rising loan-to-deposit ratio is becoming a trend across the industry.
Although the annual ratios of those banks were held below the alert line set by the banking regulator, many banks had crossed the line in some days or months.
China Citic Bank's annual report shows that its loan-to-deposit ratio exceeded 75 percent in the first 5 months of last year, leading the bank to dramatically reduce loans to keep the ratio under the line.
The bank has made absorbing deposits its top priority this year.
"To meet the regulator's requirement, many banks have taken special measures at the end of a month or a quarter, such as seeking deposits at a higher interest rate or selling their loans," said Rao Ming, an analyst with Cinda Securities Co.
An official with the Beijing Banking Regulatory Bureau told Xinhua that it is necessary to bring the daily average loan-to-deposit ratio under supervision, but the time to do so has not been officially set.
Rao said that the introduction of a daily average ratio would certainly reduce the abnormal movement of bank deposits at month and quarter ends, as seeking loans at a higher rate will become too costly for banks in the long term.
With a daily average ratio requirement, banks would have to not only pay attention to the long-term balance of deposits, but also make loans in a steady and orderly manner, according to Rao.
To mop up the excessive liquidity that helps fuel inflation, China's central bank has raised the reserve requirement ratio for commercial banks nine times since the beginning of last year.
Large commercial banks are already required to put aside a historic high of 20 percent of the deposits they receive as reserves.
At present, three of the country's state-owned banks, the Industrial and Commercial Bank of China, China Construction Bank and the Agricultural Bank of China, have a loan-to-deposit ratio below 70 percent.
The ratio of the Agricultural Bank of China is only 55.77 percent.
Hu Xinzhi, the bank's general manager of its strategic management department, said that although large commercial banks have some advantages over small and medium ones, they will have to be more cautious in lending to small banks after the implementation of a daily average ratio requirement.
As both the scale and pace of issuing loans are strictly regulated by the CBRC, the capital available to commercial banks is gradually decreasing, said Zong Liang, a senior manager of the Bank of China.
Banks should tighten their credits and make loans in a balanced way, as they can no longer issue massive amounts of loans to make more profits, according to Zong.
The People's Bank of China (PBOC), the country's central bank, said on Thursday that new yuan-denominated loans stood at 2.24 trillion yuan (342.83 billion U.S. dollars) in the first quarter, 352.4 billion yuan less than the same period last year.
