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China said to press banks to curb lending

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Chinese banking authorities have instructed some major banks to curb their lending over the rest of this month after an early burst of credit, official media and banking sources said on Wednesday.

The central bank has also told some individual lenders, including Citic Bank and Everbright Bank, to increase their reserve requirement ratio by half a percentage point, banking sources told Reuters.

The moves mark a further stepping up of Beijing’s efforts to keep credit growth in check after a reported rush of lending in the first few weeks of the year, worries over which had already prompted the central bank to raise banks’ reserve requirements.

Chinese banks doled out a record 9.6 trillion yuan ($1,4 trillion) in new loans last year. The lending surge, combined with Beijing’s 4 trillion yuan stimulus plan helped kick-start the economy after a late 2008 slump, but aroused fears of overheating, with data due on Thursday expected to show double-digit growth again.

“Basically the central bank is saying, ‘If you keep lending like this, I’ll be tough with you,” one of the sources said of the People’s Bank of China’s move to raise some lenders’ reserve requirements more than for other banks.

Still, there was some confusion surrounding the full scope of authorities’ actions.

The official China Securities Journal on Wednesday cited unnamed banking sources as saying that some banks had been told to stop all lending for the rest of the month.

A senior official with China Merchants Bank and a senior executive with Agricultural Bank of China both told Reuters that their banks would stop approval of new loans until the end of January.

Bloomberg News and Dow Jones Newswires issued conflicting reports on whether Liu Mingkang, the chief banking regulator, confirmed that banks had been instructed to hold back on lending.

Bloomberg quoted Liu on its website as saying in an interview that regulators had asked some, but not all, banks to limit lending. Dow Jones cited him as saying the China Banking Regulatory Commission had not told banks to stop lending.

Such verbal orders would not be unprecedented, and they would typically not apply equally to all lenders or all types of businesses.

Worries over the impact of lending curbs knocked the shares of major Chinese banks down by between 2.5 and 3.2 percent. The losses pushed Shanghai’s benchmark index down 1 percent, weighed on the rest of Asia-Pacific and hurt the Australian dollar.

NOT ALL LENDERS EQUALLY HIT

A news department official with the CBRC declined to comment on the reports, as did an official with the central bank.

However, another CBRC official told Reuters the lending surge in the first two weeks of January would probably trigger a policy change, and that the regulator would probably use more administrative measures to curb loan growth in the future as the central bank’s steps to date had not been effective enough.

The central bank has pushed up its bill yields over the past couple of weeks and raised banks’ reserve requirement ratio last week by half a percentage point to tie up excess cash.

“This year we will continue to control the pace and amount of credit supply,” Liu told a financial conference in Hong Kong.

Underlining the fragmented nature of implementation of any such order, another official newspaper, the Shanghai Securities News, cited a senior source with an unidentified state bank as saying its lending had not been affected.

In his remarks in Hong Kong, Liu acknowledged that lending in the first 10 days of 2010 was strong, after domestic media said that 600 billion yuan ($87.9 billion) in new loans were extended in the first week of the year alone. Some economists estimate banks have already lent over 1 trillion yuan so far this year.

“With effective demand being met gradually, this trend will ease soon,” Liu said, according to a transcript of the speech published on the CBRC’s website.

He added that new loans this year were estimated to total 7.5 trillion yuan, according to the transcript, although that comment was later deleted from the CBRC’s text of the speech.

Source: Reuters

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