‘Guidance’ for Chinese banks

Regulator wants to cool loan growth which has topped 15% this year

BEIJING: China's banking regulator said it is giving “guidance'' to banks to cool lending that has already topped its goal of 15% growth this year and threatens to overheat the world's fastest growing major economy. 

The China Banking Regulatory Commission denied a Wall Street Journal report yesterday that it had ordered banks to freeze this year's lending at Oct 31 levels. A 15% ceiling on loan growth was an “informal guidance, not a hard target'', said Lai Xiaomin, the commission's Beijing-based spokesman. 

Record trade surpluses have pumped cash into China, threatening to stoke inflation, asset bubbles and investment leading to overcapacity in manufacturing. The central bank has raised the benchmark one-year lending rate by 1.17 percentage points this year to 7.29% and ordered commercial lenders to set aside larger reserves. 

“Reserve ratio requirement hikes and rate hikes have not been able to slow bank lending growth this year,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc in Hong Kong. “Therefore, the government has to rely on this non-market type of monetary policy tool.'' 

Chinese banks extended 3.5 trillion yuan (US$471bil) of new loans in the first 10 months, a 15.6% increase from loans outstanding at the end of last year, central bank data show. 

“Banks that exceed the 15% cap will face regulatory obstacles in applying for a new branch opening or new product lines,'' said Li Shanshan, a Shenzhen-based analyst at China Merchants Securities Co. “Therefore, banks still have an incentive to obey what the government says.'' 

Lending was biggest early in the year “so slower lending in the remaining two months won't have a significant impact on their bottom lines,'' Li said. The average loan growth at big state-owned banks this year was about 15% versus about 20% at small and medium-sized lenders, the analyst said. 

The regulator last week told state banks to curb lending, citing the 15% target, according to the Shanghai Securities News. Another newspaper, China Business News, reported last week that overseas banks were told to tighten lending to real estate developers. 

“We don't subject banks to hard-and-fast lending caps since individual banks have such different business needs,'' the regulator's Lai said. “What we want is a reasonable pace of loan growth, dependent on each bank's capital adequacy ratio, and the risk and quality of its loan portfolio.'' 

The government efforts to guide lending illustrate its reluctance to “raise rates too much or let the yuan appreciate faster'' to curb liquidity, according to Wang Tao, head of economics and strategy for Greater China at Bank of America Corp in Beijing. – Bloomberg

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