China calls on major lenders to curb credit growth this year

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THE PEOPLE’S Bank of China has asked banks to reduce loan growth for the remainder of the year due to bubble risks. – REUTERS

THE CENTRAL BANK OF CHINA called on the country’s major lenders to curb loan growth for the rest of the year after a sharp increase in the FiThe first two months fueled the risk of a bubble, according to people familiar with the matter.

In a meeting with the People’s Bank of China (PBoC) on March 22, banks were urged to keep new advances in 2021 at about the same level as last year, the people said, asking not to not be identified because the matter is private. Some foreign banks have also been urged to curb additional lending through so-called over-the-counter advice after increasing their balance sheets in 2020, one of the people said.

The comments go into more detail on what the central bank said publicly after the meeting, when it said it asked representatives of 24 major banks to keep lending growth stable and reasonable. In 2020, banks distributed a record 19.6 trillion yuan ($ 3 trillion) in credit, about a fifth of which was for inclusive finance such as loans to small businesses. Lending the same amount this year would bring the outstanding balance to about 192 trillion yuan, an annual increase of about 11%, the slowest pace in more than 15 years.

“On the one hand, there will be a slowdown in loan growth, and on the other hand, the slowdown is quite moderate,” said Lu Ting, chief economist for China at Nomura Holdings Inc., adding that the rhythm is consistent with the position of the PBoC. not to make sudden political turns.

With the coronavirus largely contained and the economy rebounding, Chinese policymakers have renewed a campaign to limit risks, especially in the financial and real estate sectors. Even if credit growth slows, the prospect of higher interest rates and fewer degraded assets could boost the profitability of banks, which have seen their profits plummet after being enlisted to help borrowers get cheap financing during the pandemic.

The PBoC did not immediately comment.

Chinese banks granted 4.9 trillion yuan in new loans in the first two months, up 16 percent from the same period last year, according to official data. The central bank asked banks in February to keep new lending in the first quarter at about the same level as last year, if not lower, the Financial Times reported earlier.

Credit restrictions will drain liquidity from the stock market and put pressure on high valued sectors, said Ken Chen, Shanghai-based analyst at KGI Securities.

Chinese liquor giant Kweichow Moutai Co. led a massive sell-off of blue-chip stocks on Tuesday, falling 2.8%. WuXi AppTec Co. slipped as much as 5.4%.

The PBoC wants banks to focus on lending in areas such as innovative technologies and manufacturing, she said at the March meeting. Earlier this month, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, warned of bubbles in the real estate and financial markets, fueling fears among policymakers to start tightening monetary policy.

The Chinese government is using the economic recovery to get out of debt, a long-standing goal suspended during the trade war with the United States and further delayed by the pandemic. Last year’s stimulus measures pushed debt to nearly 280% of annual economic output.

The economy racked up much of its record debt after the global financial crisis, when it rushed into credit to avoid the economic collapses ravaging the West. Efforts in 2017 to curb debt growth, especially in shadow banking, led to higher money market rates and a collapse in government bonds. – Bloomberg

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