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China to scrap loan-to-deposit ratio cap for banks

China's State Council plans to remove a rule limiting banks from lending more than 75% of the value of deposits, Bloomberg said26 Jun 2015

The ratio will now be advisory rather than regulatory, but a system will be set up to monitor the liquidity of banks, according to the Bloomberg report.

The move will allow banks "to strengthen the ability of financial institutions to lend more to the agriculture sector and small businesses”, the statement said, according to the Financial Times.

This is the first time the law has been changed since it came into effect two decades ago, and the change will still have to be approved by the "body that runs the legislature", said Caixin Online.

A banking regulatory official told Caixin that the loan-to-deposit ratio is one of several requirements that hinder banks' attempts to operate independently.

"With progress in interest rate liberalisation and the capital account opening up, China's banking industry needs to be guided by international norms," the official told Caixin.