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China to control credit growth
Published on: 2010-01-20
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BEIJING—As China signaled a further tightening of controls on lending growth, one of the country's big banks said it was taking steps to rein in loans.

Bank Of China Ltd. has ordered its credit officials to halt any new yuan loans due to overly fast lending growth so far in January, a person familiar with the situation said Wednesday. The headquarters of the state-controlled lender has issued a notice to all of its branches to stop issuing new yuan loans and also curb foreign-currency denominated new loans, said the person, adding that the bank didn't say in the notice when new yuan loans will resume.

Any new loans, if they were to be extended, would have to be approved by the bank's headquarters, the person said.

In a statement, Bank of China said its new loans in the first 20 days of January has been high and that it will take a closer look at its lending, though it didn't say whether it had suspended lending.

Banking shares in Shanghai and Hong Kong fell on renewed concerns over lending supply after a Chinese media report that the China Banking Regulatory Commission has asked several commercial banks to stop issuing new loans in the remaining days of January.

CBRC Chairman Liu Mingkang said Wednesday that the regulator sees a substantial drop in new yuan lending after last year's explosive growth, but said the CBRC hasn't specifically told banks to suspend lending in January.

"I've made it very clear about bank lending. We have never asked the banks to stop lending," Mr. Liu said on the sidelines of a conference in Hong Kong.

Still, "there are worries that there will be more restrictions on lending, so liquidity will likely tighten," said Amy Lin at Capital Securities in Shanghai.

In early trading in Shanghai, China Construction Bank fell 1%, China Merchants Bank was down 1.3% and Bank of China lost 0.7%. In Hong Kong, China Construction Bank was 1.9% lower, ICBC was down 1.3% and Bank of China was off 2.0%. The Shanghai Composite Index was 1.0% lower and Hong Kong's Hang Seng Index fell 1.4%.

Mr. Liu said he expects China's new yuan bank loans to fall to around 7.5 trillion yuan this year from 9.59 trillion yuan in 2009, and outstanding yuan loans to rise 16%-18% this year, down significantly from a 31.7% increase in 2009.

Widespread concerns that fast growth in credit last year may lead to an asset bubble have led to calls for the authorities to rein in lending.

Beijing's stance on monetary policy has been gradually hardening over the last week as it prepares to gradually wean the country off the massive stimulus lending that has supported the economy over the last 12 months. So far it has taken fairly moderate actions, guiding up the interest rate on government bills and increasing the amount of reserves banks must hold at the central bank, which will decrease the amount banks can lend.

The banking regulator has also been taking aim at the quality of loans being made, saying Monday that banks will be required to base their lending on real demand and properly manage the pace and quality of lending. That follows signs of lending at a breakneck pace in the first few weeks of the year, when banks traditionally ramp up lending. A local media report earlier this moth said new loans in the first week of the year grew by 600 billion yuan, a massive figure. In all of December, new yuan loans were 379.8 billion yuan.

The CBRC also said Monday it will closely watch changes in the property market and will strengthen its supervision and window guidance of related loans in 2010.

In a statement posted on the State Council Web site Tuesday, Premier Wen Jiabao further signaled China's shift toward slower loan growth, dropping reference to implementing an active fiscal policy and moderately loose monetary policy, a long held mantra on macroeconomic policy.

Bank of China, in an emailed statement, said Wednesday: "To ensure a proper amount and pace of lending and maintain the sustainability of lending, [we] must try our best to balance lending from month to month and from quarter to quarter." It said it will strictly scrutinize the lending criteria as well as the use of loans.

The comments came after the state-run China Securities Journal reported Wednesday, citing unnamed sources, that credit officials at several banks, including Bank of China, were told by senior managers to stop extending new loans in the remainder of January.

An Agricultural Bank of China Ltd. lending official said it hasn't received any such instructions. Spokesmen at China Construction Bank Corp. and Industrial & Commercial Bank of China Ltd. also said the banks haven't received such instructions.

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