China's central bank said on 2 May that it will raise the amount banks must hold in reserve for the third time this year, in the latest move by Beijing to cool its booming economy.
The increase comes after regulators ordered China's largest banks to re-examine their loan books and provide estimates of their exposure to uncollateralised loans, especially to provincial governments, according to Chinese bankers and analysts. If banks are unable to find assets to collateralise these loans within the next few months they may be required to downgrade the loans, potentially leading to a spike in non-performing assets on their books, analysts said.
After reporting record profits in the first quarter, Chinese banks are under pressure to rein in lending and restrict loans to certain sectors and industries as Beijing attempts to calm the economy without causing growth to stall.