China moves to cut capital requirements to ease bank lending

Parameters for macroprudential assessments may be lowered.

Reuters reports that China’s central bank is said to be relaxing a number of capital requirements including structural and pro-cyclical contribution parameters in its Macro-Prudential Assessments (MPAs) for commercial banks in an effort to spur lending.

Also read: Chinese banks urged to accelerate lending as economy grinds to a halt

MPAs are conducted by the central bank on a quarterly basis in order to assess the level of risk in China’s financial system.

The structural parameter is currently set at 1.0 with Bloomberg reporting that the structural parameter will be lowered by 0.5 points so that banks will be able to lend more without compromising their performance in central bank risk assessments.

China earlier slashed the reserve requirement ratio (RRR) by 0.5% to boost SMEs who are bearing the brunt of credit crunch following Beijing's shadow banking crackdown. 

The move might also alleviate refinancing risks which have been on the rise for private Chinese firms after accounting for 61.5% of the 13 onshore issuers that have defaulted since the start of the year.

New credit as a percentage of GDP plunged to a near-three year low in June as Beijing’s campaign to clamp down on risk has dampened economic output, resulting in slower growth and factory activity.

Here’s more from Reuters: