PBOC cuts reserve requirement ratio for rural commercial banks

It'll be slashed by 2ppts.

According to Maybank Kim Eng, to support the development of “agriculture, farmer and rural areas”, the PBOC will cut the reserve requirement ratio (RRR) for rural commercial banks (RCB) and rural credit cooperatives (RCC) in county areas by 2ppts and 0.5ppt, respectively.

Here's more:

Currently, RCB’s RRR is 18% while RCC’s is 14.5%. We estimate that total deposits for these institutions amounted to CNY13t (or 12% of the sector deposits) in Mar 2014. A 2ppt cut in RRR will release CNY260b of liquidity to county areas of China (or 0.4% of the sector loans in Mar 2014). 

Most H-share banks have stakes in rural banks. With the exception of Bank of China (BOC), Bank of Chongqing (BOCQ) and China Merchants Bank (CMB), all H-share banks have established joint-venture rural banks in different regions of China. 

However, the deposits of these rural banks only accounted for 0.01-1.01% of total deposits of the H-share banks in Dec 2013.

Limited earnings impact. If we assume the H-share banks will re-channel the released liquidity from central bank deposits to county area loans, the additional net interest spread of this liquidity will be 4.38%. 

However, based on Chongqing Rural Commercial Bank (CQRB), the average NPL ratio of personal business and farmer loans was 1.6% in Dec 2013. Combining these two factors, we estimate that the cut in RRR will have limited earnings impact to H-share banks. It will enhance CQRB’s pre-tax profit by 2.4%.