China tells banks to control lending


Updated Tue, 24 Nov 2009 00:00:00 GMT

Regulators ordered Chinese banks on Monday to control lending and manage risks better amid concern that a rapid, stimulus-fueled credit boom this year might affect the industry's health.

The credit boom began to ease in July, but economists have warned that reckless lending could leave banks saddled with bad loans. The government worries excess lending might be driving dangerous overexpansion in some industries.

Banks were told to maintain a "stable and sustainable pace" of lending through the end of the year, the China Banking Regulator Commission said on its Web site. It gave no financial targets.

Banks lent about 1 trillion yuan ($125 billion) per month in the first half of the year after the government ordered them to expand credit to support its 4 trillion yuan ($586 billion) stimulus. Lending fell to less than half that level since July after banks were ordered to scrutinize borrowers more carefully.

China's state-owned banking industry is financially healthy, having avoided the mortgate-related turmoil that battered Western institutions. It has been one of Beijing's most important tools in carrying out its stimulus, which calls for some 75 percent of planned spending to be financed not by the government but by banks and state companies.

Total lending in the first 10 months of the year was 8.9 trillion yuan (US$1.3 trillion), far above the official target of 5 trillion yuan for the full year, according to the official Xinhua News Agency. It said October lending was down 51 percent from September.

The CBRC told banks to conduct more rigorous inspections of borrowers and lending.

It said banks with low ratios of capital to outstanding loans and no plans to remedy the problem would face restrictions on such areas as overseas investment and business expansion.

But the agency denied what it said were news reports that it planned to raise the minimum required capital level to 13 percent from the current 11 percent.

"There is no such requirement," the agency statement said.

The government announced investment curbs in September on steel, cement and some other industries to stop what it said was excessive investment that could lead to financial problems and job losses.