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Banks urged to follow loan policies
(China Daily)
Updated: 2004-05-14 22:58

China's banking regulator Friday urged its four largest State-owned commercial banks to strictly implement recent macroeconomic policies and closely monitor lending risks.

The China Banking Regulatory Commission (CBRC) also said it had a meeting earlier this week with the four major lenders, where they had endorsed the State's judgement about the nation's macroeconomic situation and its measures and vowed to follow the policies.

The meeting is the latest move by the central government to drive home a message that the ongoing expansion in some sectors is unsustainable and continuing unrestricted lending to those sectors will lead to financial risks.

Senior central bankers already warned banks and businesses earlier this year not to test their patience, saying that tougher monetary policy moves are not in anyone's best interests.

China's fixed investment, especially in the sectors of steel, cement and aluminium soared last year, propelling economic growth to a sizzling 9.1 per cent and straining supplies of oil and electricity as well as transportation capacity.

Bank loans were a major source of the investment expansion, with money supply growth far outpacing official targets to spark worries of new bad loans being created.

The central People's Bank of China took tightening measures in the latter half of last year, urging banks to rein in lending to overinvested industries and requiring them to set aside more money in reserves to curb their lending capacity.

But the expansion in fixed investment and money supply continued this year as businesses in the heavily invested sectors, lured by soaring profits, continued to build new factories and banks continued to grant loans.

"There have been huge impulses to make new investment," said Wang Yuanhong, a senior analyst with the State Information Centre.

Some mall firms in such sectors as coal, cement and electricity, which ignored government warnings about overcapacity a few years ago while many others were shut down, made sizable fortunes during the current price surges.

Thus, many companies are now betting they could also reap profits from the boom before prices go down, Wang said.

The CBRC Friday urged the four State-owned lenders, which account for more than half of total lending, to strictly follow lending guidelines released late last month, which spanned from setting aside adequate bad loan provisions and optimizing loan structure to keeping their capital levels up to standards.

It also stressed the need to grant loans where appropriate and to step up lending to public facilities, in a bid to prevent an abrupt slowdown in credit growth.

There has been worries recently about a "hard landing" for the Chinese economy as a result of drastic tightening measures, but the central bank has largely dismissed such fears by insisting that credit growth will be maintained at necessary levels.

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