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Moody's: Increase in FX Deposit RRR for Financial Institutions to 6% Has Limited Credit Impact on CN Banking System
2026-11-04 11:03:31 Lillian Li, Vice President of Credit Strategy and Guidance Group at Moody's Ratings, said that the People's Bank of China (PBOC) announced on Nov 3 that effective Nov 15, the FX deposit reserve requirement ratio (RRR) for financial institutions will be raised from the current 4% to 6%. This marks the first increase in the FX deposit reserve ratio since Dec 2021, indicating that the government is concerned about the pace of RMB appreciation. Since the beginning of the year, the RMB has appreciated by about 5% against the USD. By tightening domestic USD liquidity, the measure should help ease the RMB appreciation trend, although strong export demand means the appreciation trend is unlikely to reverse, Li said. The measure will have limited impact on exports but is overall mildly positive, mainly because pressure on profit margins for low- to mid-end exporters will be alleviated. Exports of high-tech products, which are the main driver of export growth, are less sensitive to pricing. Moody's forecast the measure to have limited credit impact on China's banking system. As of the end of Sep, foreign currency loans and deposits accounted for only 1.3% of total loans and 2.3% of total deposits in China's banking system, respectively. The 48% foreign currency loan-to-deposit ratio also indicates ample FX liquidity in the domestic banking system. Corporates may slow the conversion of USD export proceeds into RMB, which could reduce FX trading volume and related banking income. However, persistent corporate hedging demand may partly offset the impact. ~ AASTOCKS Financial News Website: www.aastocks.com | |