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Banks suspend trust loans to local govt finances

By Ren Jie (chinadaily.com.cn)
Updated: 2010-05-31 15:30

Most commercial banks in China have suspended issuing trust loans to local government finance platforms, following the government‘s orders to review investment agencies run by local government and control banks' lending risk, according to media reports.

Banks also required their branches to suspend financial products granting for local government finance platforms or to tighten the credit line of such products, the China Securities Journal said.

Analysts believed that loans flowing into local government finance platforms and real estate market through financing products made it harder to control banks' credit line and impaired the effects of the government's macro- control policies.

The World Bank and China's central bank say commercial banks could face losses if the investment agencies, known as "finance platforms," cannot repay their debts.

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Local authorities must "deal with the issue of debt repayment and financing for projects that already are under construction," the State Council, China's cabinet, said in a statement last week.

Amid worries that banks might face problems if they cannot repay multibillion-dollar borrowing, some commercial banks also set up various credit approval processes according to the level of risk while issuing financing products. An insider told the reporter that some products could be examined and approved only by the bank's head office.

China's state banks lent a record 9.6 trillion yuan ($1.4 trillion) in 2009, while local government finance platforms accounted for a "very high proportion" of last year's bank lending, said Su Ning, a deputy central bank governor.