China has told some banks to limit lending and will restrict overall credit growth in the nation to 7.5 trillion yuan ($1.1 trillion) this year, banking regulator Liu Mingkang said.
Some lenders were asked to rein in credit because they failed to meet regulatory requirements including those for capital, Liu, chairman of the China Banking Regulatory Commission, said in an interview today in Hong Kong. New loans in the first 10 days of this year were “relatively high,” he told the Asian Financial Forum.
Chinese stocks fell, led by banks, on concern efforts to reduce last year’s record 9.59 trillion yuan of new loans will hurt earnings. The credit boom, while reviving growth in the world’s third-largest economy, has raised the risk 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 per cent to HK$5.89 in Hong Kong. Bank of China slumped 3.4 per cent, extending this year’s decline to 6 per cent. China Construction Bank, the nation’s second-largest lender, fell 3.1 per cent.
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.
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“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 said, without identifying those that had been told to do so.
Bank of China’s new lending in the first 20 days of January was “relatively large,” according to an e-mailed statement from the lender today. The company said 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 rebound to 8.9 per cent in the third quarter of 2009. China will release fourth-quarter growth figures tomorrow. The world’s third-biggest economy may have expanded 10.5 per cent in the final three months of 2009, according to the median forecast of 41 economists in a Bloomberg News survey.
Loan growth 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.
Major Chinese commercial banks received verbal orders from authorities to halt new lending for the remainder of January after credit was reported to have already exceeded 1 trillion yuan, the China Securities Journal reported today, citing unidentified people in Beijing and Shanghai.
ICBC, Bank of China and other lenders have effectively 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, citing industry and government sources it didn’t identify.
The CBRC will impose new leverage and liquidity ratios on the nation’s banks, Liu said today, without providing details. The watchdog prohibits banks from guaranteeing corporate bonds and forbids lenders from counting cross-holdings of subordinate bonds as Tier 2 capital, he said. Tier 2 capital refers to banks’ supplementary capital including funds raised from convertible bonds and preferred stock.
The People’s Bank of China on January 12 unexpectedly raised reserve requirements to cool the world’s fastest-growing major economy. The ratio for big banks was raised by 50 basis points to 16 percent.
The central bank has ordered at least China Citic Bank Co and China Everbright Bank Co to lift their reserve ratios by 0.5 percentage points to slow their credit expansion, Reuters reported today, citing people it didn’t identify.
An official at Citic Bank’s investor relations office said she had “no definite information” regarding the report. The lender dropped 4.1 per cent to $5.61 in Hong Kong. Phone calls to China Everbright spokesman Zhao Baofu weren’t answered.