MercoPress. South Atlantic News Agency

Beijing asks banks to “strictly control” granting new loans

Banks not told to hold total lending in 2007 to level set on Oct 31

China's banking regulator has ordered commercial banks to “strictly control” the granting of new loans for the rest of the year in an attempt to prevent overshooting this year's lending growth target and overheating the world's fourth economy.

According to an official from the China Banking Regulatory Commission (CBRC) three emergency meetings were held with the country's state-owned, joint stock and foreign banks during November 8 to 15, with the purpose of extending "window guidance" on lending growth. "We asked them to strictly control lending in the remainder of the year so the overall lending size for the year would not overshoot too much", said the CBRC official. The Wall Street Journal reported Monday that Beijing has ordered all banks to freeze overall lending levels for the rest of the year, with loan portfolios maintained at their end-October levels. However there has been no formal notice of a new loans freeze but "window guidance" has made new lending "extremely difficult". China's commercial banking law requires lenders to keep the loan-deposit ratio under 75%. The rate for the sector overall is approaching 69% for Yuan loans, according to the latest figures released by the People's Bank of China (central bank). China's outstanding Yuan loans were up 17.7% at the end of October, but some experts believe the level has already been breached by some banks, helped by excessive lending and an exodus of savings from deposit accounts in search of higher returns such as in the stock market. Speaking at a weekend conference Li Fuan, director of CBCR said that loan growth this year is most likely to exceed the 15% target. Another member from CBRC, Lai Xiaomin, denied Wall Street Journal reports arguing that "we've only asked banks to control credit in a reasonable way. No quotas or percentages have been established". Meantime speaking at the G20 summit in South Africa China said it supports a "strong dollar" as it would foster a healthy global economic system. People's Bank of China governor Zhou Xiaochuan said Beijing hoped for an orderly solution following recent market turbulence stirred by defaults of U.S. mortgages. "So in this sense, actually we hope to see a strong dollar," he said. "We support a strong dollar." Zhou stressed China's support of the dollar was made in an international context and not with regards to its 1.43 trillion in foreign exchange reserves. Turning to the domestic economy, Zhou said Beijing need not raise interest rates too frequently given inflationary pressures were coming mainly from rising food prices. But China could not rule out further rate rises although none were on the cards "next week", he said. A spike in food prices pushed China's consumer inflation to an 11-year high of 6.5% in October from 6.2 in September. China's central bank has raised interest rates five times this year partly to curb inflation and to prevent real returns on bank deposits from sinking too far into negative territory. Given excess liquidity in the economy, spurred by global market conditions and China's rapid accumulation of forex reserves, China would continue to raise banks' reserve ratios, Zhou said. "We are going to continue to withdraw the liquidity by raising the reserve requirements. We still have a large room for doing so," he said.