China's CBRC eases LDR calculation rules

Which will moderately ease liquidity for banks.

In a move that will moderately ease liquidity for banks, the CBRC on June 30 announced new rules regarding the calculation of loan to deposit ratio (LDR), effective from July 1, 2014.

According to a research note from Barclays, the new rules add three more types of loans that are deductible in the LDR calculation and qualify two more types of funding sources as deposits.

The report said that in addition, under the new rules, the 75% LDR requirement now only applies for RMB business instead of for all currencies before.

Here's more from Barclays:

According to our estimate, the implementation of the new LDR rules would lower the systemic LDR by 2-4ppts immediately, thus having a loosening impact on the economy by creating more potentially available credit.

In our view, however, the relaxation is more expansionary for banks operating near the LDR ceiling of 75%. For instance, 2-4ppts lower LDR could let joint-stock banks extend RMB420bn-850bn more loans.

Moreover, PBOC will need to loosen loan quota control for these banks to use the new funds available. Overall, we believe the move is positive for China banks.