Chinese regulators have issued “guidance” to all Chinese banks, telling the most aggressive lenders to temporarily stop lending and imposing lending quotas on others, amidst growing fears of asset bubbles and inflation.
The latest efforts to curb credit growth follow a burst of lending activity by Chinese banks, raising concerns about overheating in the Chinese economy. Analysts say that banks extended as much as Rmb1,100bn in new loans in the first two weeks of January alone.
If that level of lending were to continue, banks would pump nearly Rmb30,000bn into the Chinese economy this year, equating to four times the Rmb7,500bn annual target for new loans announced on 20 January by Liu Mingkang, chairman of the China Banking Regulatory Commission.
A state-run newspaper on Wednesday cited unnamed banking sources as saying some banks had been told to stop all lending for the rest of this month and that Bank of China – which has been the most aggressive amongst the large state banks – had switched off its internal electronic loan approval system.
In a statement on 20 January, BOC admitted that it had issued an unusually large volume of new loans in the first 20 days of January, and said it would return to a more sustainable and even lending pace.
The bank did not disclose how much it had lent or answer questions about whether it had suspended lending operations, according to a report in the Financial Times.
Analysts say Beijing has also raised the required amount some banks must hold in reserve with the central bank, leaving them less money to hand out as loans.
Following government orders to support the economic stimulus programme, Chinese banks extended Rmb9,600bn in new loans in 2009, more than double the amount in 2008. This has led to a steep rise in asset prices – particularly in real estate and stock market investments – and fears that inflation could take hold in the coming months.
There is also a growing fear that the sudden credit expansion will lead to a dangerous rise in Chinese banks’ non-performing loan ratios.
In a speech published on 19 January, Chinese premier Wen Jiabao appeared to support tougher measures aimed at reining in surging lending. “China will maintain reasonable and ample growth in money supply and credit, focus on optimizing the credit structure and carefully manage the pace of lending to reduce financial risks,” he said.
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