China's 75% LDR to be removed as regulatory requirement

The State Council has approved the proposal.

It has been noted that loan-to-deposit ratio of 75% as a regulatory requirement will be removed.

According to a research note from Barclays, the proposal to remove LDR as a regulatory requirement from the Commercial Bank Law has been approved by the State Council.

This is according a statement released by the State Council on its website.

Instead, LDR will become a monitory indicator for liquidity. The proposal needs further approval by the NPC Standing Committee before implementation.

Here's more from Barclays:

Well expected by the market: The removal of LDR from the Commercial Bank Law is not new news, it has been discussed for more than 6 months. Therefore, we believe such a move has been well expected by the market.

New loans may not surge in the near term: Given insufficient loan demand from the real economy as well as existing loan quota controls, we don't expect to see a surge in new loans in the near term.

Banks with higher LDRs could benefit more: In the long term, we believe this relaxation will reduce banks' needs to compete fiercely for deposits as they did before, so banks could have better control over their funding cost, in our view.

Banks currently with higher LDRs, such as BOCOM (OW) and CITIC Bank (OW), could benefit more, in our view.