State banks 'awash with funds'
The problem of excessive money market liquidity cannot be alleviated in the short term, with many state banks awash with surplus funds after recent public listings, the central bank said.
Commercial banks were also under pressure to post strong profits after becoming publicly listed companies, the Shanghai headquarters of the People's Bank of China's said.
'Most state-owned banks will more aggressively extend loans following their initial public offerings due to surplus capital and strong incentives to increase profits,' yesterday's edition of the Shanghai Securities News cited a bank report as saying.
The Bank of Communications, the fifth-biggest on the mainland, was the first to list in Hong Kong, in June 2005. Three of the 'big four' - the China Construction Bank, the Bank of China and the Industrial and Commercial Bank of China - listed last year. The Bank of China and the ICBC have also listed shares in Shanghai, with the ICBC's dual listing becoming the world's largest initial public offering.
'This will post a challenge to the operation and management of the financial institutions,' the report said.
Stephen Green, a senior economist with Standard Chartered Bank in Shanghai, said excessive liquidity would continue. He said the central bank's main tools to deal with the challenge would be increases to banks' reserve requirement ratios and interest rates.
Sheng Minggao, a China economist with Citigroup, questioned how effective the central bank's increases in reserve requirement ratios would be in dealing with the situation.
'Each hike in the reserve requirement ratio by the central bank will only freeze as much as China's net foreign reserves increase in one month, which is about US$20 billion,' Mr Sheng said.
