Three days before the latest reserve-requirement ratio rise takes effect, China's big commercial banks said the increase would hardly affect them despite the fact that more than 420 billion yuan (60 billion U.S. dollars) was expected to be set aside.

The estimation was based on the outstanding balance of M2, or the broad money supply, which stood at 42.92 trillion yuan at the end of April.

Analysts with the research institute of Bank of Communications (BOCOM), said the central bank's latest effort to drain excessive liquidity targeted capital inflows from overseas and domestic stock markets. Large commercial banks had the capacity to cushion its impact.

China Construction Bank and the Industrial and Commercial Bank of China also said they had not made any adjustment to their current loan policies, despite an anticipated credit contraction.

Lian Ping, BOCOM's chief economist, said commercial banks would possibly stop lending before some loans to enterprises reached maturity. But if these enterprises failed to pay off because of intra-financial problems, these loans would add to the banks' non-performing assets.

Large banks would be able to deal with the bad loans as they had ample capital, but smaller ones would probably have a difficult time. Moreover, if the capital market underwent heavy turmoil, large banks would also suffer liquidity pressure as interbank deposits took up a large proportion of their savings.

Earlier this month, China's central bank announced it would raise the reserve-requirement ratio by 0.5 percentage points on June 15, and another 0.5 percentage points on June 25. It would bring the ratio to a record high of 17.5 percent.

(Xinhua News Agency June 13, 2008)