Foreign debt quota for banks up 12pc

PUBLISHED : Saturday, 28 March, 2009, 12:00am
UPDATED : Saturday, 28 March, 2009, 12:00am

Beijing is setting the short-term foreign debt quota for banks this year 12per cent higher than last year, to boost the country's trade finance business, the State Administration of Foreign Exchange said on its website yesterday.

The quota this year is US$32.9 billion. Of that, mainland lenders' overseas short-term borrowing quota is US$9.85 billion, while the quota for foreign banks incorporated locally and some other foreign lenders is US$14.57 billion.

Trade finance refers to banking services related to financing the trade between companies in different countries.

'The increased [quota] has to be used for trade finance,' SAFE said.

The regulator said the quota was raised to allow lenders to establish trade finance business, help companies obtain funding and support import and export trade that would sustain economic growth.

It said the balance of payments on the mainland faced greater uncertainty as the economies of developed countries worsened and external demand dropped substantially.

Frances Cheung, a fixed-income strategist at Standard Chartered, said the effect of the increased quotas on the economy would not be significant in the short term.

'The key is that there may not be too much export demand at the moment owing to the global economic slowdown,' she said. 'However, the economy will benefit from the government's move when the market recovers, since there will be more channels to boost trade.'

The statement added that trade finance loans of less than 90 days would not be considered as part of the quota, allowing room for banks to provide short-term trade financing.