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Lending caps to reduce liquidity

By Mao Lijun and Wang Bo (China Daily)
Updated: 2010-01-21 09:14

Banking regulator may monitor new loans on monthly basis

The China Banking Regulatory Commission (CBRC) has revived the "loan quota" mechanism and will scrutinize commercial banks' lending pace on a monthly and quarterly basis, according to sources familiar with the matter.

New yuan loans are expected to be around 7.5 trillion yuan ($1.10 trillion) this year, down from 9.6 trillion yuan in 2009, CBRC Chairman Liu Mingkang said yesterday. [China Daily]

"Each commercial lender should, each month, advance no more than 12 percent of the total new credit it planned to give out in the year," the source told China Daily yesterday on condition of anonymity.

From a quarterly perspective, new loans being issued should not exceed 30 percent of the bank's annual loan target, the source said.

That means total new loans being extended every month will be capped at 900 billion yuan ($131.82 billion), the source said, but noted that the amount of credit in January might be "an exception", as commercial lenders tend to be front-loaded this month partly due to the upcoming weeklong Spring Festival holiday in February.

The loan quota is set by the central bank, while the CBRC is responsible for overseeing the lending pace of each commercial lender, the source said.

Analysts said the move is a fresh sign that the government is determined to soak up liquidity in the face of the possibility of rising inflation and asset bubbles.

The loan quota mechanism was imposed between late 2007 and the first half of 2008 as a measure to deal with the economic overheating, and was removed in late 2008 due to the global financial crisis.

Liu Mingkang, chairman of the CBRC, the nation's top banking regulator, said yesterday that he expected new yuan loans in 2010 to be around 7.5 trillion yuan, down from last year's 9.6 trillion yuan, indicating the nation's earlier strong torrent of lending is set to ebb this year.

"We had asked some of the nation's banks to limit lending after they failed to meet requirements including those for capital," the chairman told reporters at the sidelines of the Asian Financial Forum in Hong Kong.

The regulator said earlier in a statement that it is up to the commercial lenders' boards of directors to decide their own credit plans for the whole year, but sources indicated that financial regulators still have a say on how much banks will lend annually and will regulate through verbal instructions.

"Considering the monthly ceiling of 900 billion yuan, the total credit supply is still sufficient, but loans flowing to the private sector may reduce and private enterprises could be the first to feel the pinch," said Chen Xi, a banking analyst at First Capital Securities.