April 12 (Bloomberg) -- Chinese banks extended a less-than- estimated 510.7 billion yuan ($74.8 billion) of new loans in March after the central bank told lenders to set aside bigger reserves and pace credit growth.
Chinese banking regulator Liu Mingkang said yesterday that lenders must report on their risk exposures by the end of June to help prevent a stimulus-linked credit boom from causing more bad loans. China is weighting an exit from crisis policies including the yuan’s peg to the dollar as economists estimate the economy grew 11.7 percent last quarter, the fastest pace since 2007. That report is due April 15.
The loan number “is certainly good news given the rising overheating pressures in the economy,” said Song Yu, a Hong Kong-based economist at Goldman Sachs Group Inc. Liquidity “remains abundant,” Song said.
M2, the broadest measure of money supply, grew 22.5 percent in March from a year earlier, the central bank’s data showed. That compared with the economists’ median forecast of 22.2 percent and a 25.5 percent gain in February.
Currency Holdings
China’s foreign-exchange reserves, the world’s largest, rose at a slower pace, climbing to $2.447 trillion at the end of March, the same report showed. The currency holdings gained by about $47.9 billion in the first quarter, the People’s Bank of China said on its Web site today. That compared with a $127 billion jump in the previous three months.
Policy makers are trying to minimize the risks of soured loans, resurgent inflation and asset bubbles after unprecedented lending to counter the effects of the global financial crisis.
The banking regulator has told lenders to report on their risk exposure to borrowers including local-government companies used as vehicles for borrowing for stimulus projects.
Financial regulations in China will go “back to the basics,” Mingkang, chairman of the China Banking Regulatory Commission, said at the Boao Forum for Asia in Hainan province yesterday.
“Monetary authorities now need to direct loans to the real economy and prevent more lending from fueling property bubbles,” Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch, said before the report. “Better lending guidance is necessary to prevent potential financial risks to avoid bad loans emerging from property lending or local- government borrowings”.
Lending Spurt
First-quarter new lending was 35 percent of the government’s full-year target of 7.5 trillion yuan, partly because Chinese banks lend more at the start of each year. March lending was down from a monthly record of 1.89 trillion yuan a year earlier. In the first three months of 2009, lending was 48 percent of the year’s total.
Meantime, a smaller trade surplus in the first quarter -- down 77 percent from a year earlier at $14.49 billion -- capped the increase in the nation’s foreign-exchange holdings. Li Wei, a Shanghai-based economist at Standard Chartered Bank Plc, said the U.S. currency’s strength last quarter reduced the value in dollar terms of reserves held in currencies such as the euro.
Benchmark interest rates have been left unchanged in China after cuts made to counter the financial crisis. The central bank may raise rates this quarter when inflation tops the government’s annual target of 3 percent, Li Daokui, a newly appointed academic adviser to the central bank, was quoted by the official China Securities Journal as saying April 7.
Interest-Rate Increase
A rate increase may come this month as the central banks seeks to curb inflation and damp property price gains, State Information Center economist Zhu Baoliang said, the same newspaper reported on April 9.
Property prices gained the most in almost two years in February even after the government tightened mortgage lending. The banking regulator last month ordered lenders to curb loans to some property developers.
Surging loan growth has helped boost earnings at China’s biggest lenders, Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., which posted 16 percent and 15 percent gains in profits, respectively, last year. Increased lending has also added pressure on them to replenish capital and meet regulatory requirements.
China’s publicly traded banks have raised about 150 billion yuan from bond and share sales since the second half of last year. Three of the nation’s five largest banks, ICBC, Bank of China Ltd. and Bank of Communications Ltd., have announced plans to raise 107 billion yuan of capital, according to Bloomberg data.
--Li Yanping. Editors: Paul Panckhurst, Lily Nonomiya
Business Week
