China asks banks to limit lending

Category: International Finance Sub-category: International Banking
Document type: news

"China has mentioned some banks to put some restrictions over lending procedure and will restrict overall credit growth in the nation to 7.5 trillion yuan ($1.1 trillion) this year," banking regulator Liu Mingkang said.

In an interview at Hong Kong,Liu, chairman of the China Banking Regulatory Commission, declared that few lenders were asked to rein in credit as they failed to meet regulatory requirements including those for capital.

Faliure of Chinese stocks put up high concern efforts to reduce last year’s record 9.59 trillion yuan of new loans that may hurt earnings.

The credit boom, while reviving growth in the world’s third-largest economy, has raised the isk of asset bubbles and bad loans.

“Banks speeded up loan extensions with the knowledge that the government will tighten credit in 2010,” said May Yan, an analyst at Nomura International HK Ltd. “It’s a game that banks play with the China Banking Regulatory Commission.”

Yan recommends investors buy shares of Industrial & Commercial Bank of China Ltd, Bank of China Ltd and China Construction Bank Corp.

ICBC, the world’s most profitable bank, fell 2.6% to HK$5.89 in Hong Kong. Bank of China slumped 3.4%, extending this year’s decline to 6%. China Construction Bank, the nation’s second-largest lender, fell 3.1%.

Premier Wen Jiabao said yesterday "China will “well manage” the pace of credit growth after the nation’s central bank last week raised the proportion of deposits banks must set aside as reserves for the first time in 18 months."

“We have a number of regulatory requirements to ensure prudent supervision,” Liu said of China’s banks. 

“For those that failed to meet these standards, we told them to limit lending.” Liu was in Hong Kong to attend the Asia Financial Forum.

The regulator hasn’t asked all Chinese banks to limit lending, Liu also added.

Bank of China’s new lending in the first 20 days of January was “relatively large.”

The company declared that it will try to balance loans between months and quarters and that it needs to pay more attention to loan structure.

China’s banks are monitored on more than 10 indicators, Liu said. “If you fail one of them, your loan expansion will be limited. That said, financing for good existing projects will be guaranteed.”

Last year’s record loan growth helped economic growth up to 8.9% in the third quarter of 2009. 

The world’s third-biggest economy may have expanded to 10.5% in the final three months of 2009, according to the median forecast of 41 economists in a Bloomberg News survey.

The growth of loan will “ease very soon,” according to a transcript of Liu’s speech posted on CBRC’s Web site.

“We will continue this year to control the pace and amount of credit supply,” which will “come down to 7.5 trillion yuan this year,” Liu said.

"ICBC, Bank of China and other lenders have stopped granting new loans after the banking system extended about 1.5 trillion yuan in new credit during the first two weeks of this month," Market News International reported today.

"The CBRC will impose new leverage and liquidity ratios on the nation’s banks," Liu said today. 

"The watchdog prohibits banks from guaranteeing corporate bonds and forbids lenders from counting cross-holdings of subordinate bonds as Tier 2 capital," he said. 

The ratio for big banks was raised by 50 basis points to 16%.

"The central bank has ordered at least China Citic Bank Co and China Everbright Bank Co to lift their reserve ratios by 0.5% points to slow their credit expansion," Reuters reported today.

Source: Business Standard