Lower reserve requirements for smaller banks

China will allow qualified small and medium-sized financial institutions to extend more loans by lowering the requirements on the money they must set aside as reserves, said a central bank deputy governor on Thursday.

The central bank is trying to make its policies more targeted, and has implemented differentiated reserve requirement ratios for smaller lenders to encourage lending to small enterprises and the agricultural sector, Pan Gongsheng, deputy governor of the People's Bank of China, was quoted as saying by the China Securities Journal.

The central bank has set a target that "growth of lending to small enterprises must be higher than that of total lending, and new loans extended to the sector within the year must be higher than that of last year," Pan said.

Small and medium-sized lenders will have reserve requirement ratios, or RRR, 2 percentage points lower than major lenders, and rural cooperative banks will have RRR 5.5 percentage points lower. Rural credit cooperatives will have RRR 6 percentage points lower, according to Pan.

The RRR for China's major banks currently stands at 20 percent.

The PBOC has introduced a differentiated reserve requirements system since 2004 that requires banks to have additional RRR if they cross lines of indicators such as capital adequacy ratios and asset quality.