CBRC to crack down on bill discounting

PUBLISHED : Saturday, 18 April, 2009, 12:00am
UPDATED : Saturday, 18 April, 2009, 12:00am

Mainland banking regulators may soon crack down on so-called 'discounted bills' issued by banks over concern that the money may actually be used for speculative purposes.

About 20 per cent of the 1.48 trillion yuan (HK$1.68 trillion) in discounted bills granted by banks did not flow into the real economy in the first quarter, state media quoted official sources as saying.

The China Banking Regulatory Commission has increased scrutiny of the special form of financing and will soon ban it when it is not related to trade after finding irregularities during its probe of swelling loans, the Shanghai Securities News reported yesterday.

New loans extended by mainland banks totalled 4.58 trillion yuan in the first quarter, up 25 per cent on the year after the central bank loosened monetary policy to stimulate the economy.

About 32 per cent of the loans were discounted bills, central bank figures show.

In 'discounting' a bill, a bank takes ownership of a company's bill to a buyer before it is due and credits the value of the bill, after a discount charge, to the company's account. The bank then collects on the bill.

The reported 20 per cent of discounted bills that are not flowing into the real economy suggests that about 300 billion yuan has been channelled into stocks and other assets or used for arbitrage of speculative purposes. Beijing is concerned because it wants loans to go to the real economy to combat the economic slowdown.

'The CBRC is urging banks to manage short-term discounting bills in the same way as they manage credits,' the newspaper said, citing unidentified authoritative sources. 'The central bank will also adjust interest rates to prevent arbitrage.'

Analysts had estimated 458 million yuan or more of the new loans did not go to the real economy, higher than the 300 million yuan revealed by authorities.

The Shanghai Composite Index surged 30.34 per cent over the quarter, prompting worries that some of the new loans were channelled into the stock market.

Even the new loans that have flowed into the real economy have not been fully used, according to Yuan Gangming, a researcher with the Chinese Academy of Social Sciences. 'Nearly 4.6 trillion yuan of loans were extended in the first three months, close to the 4.91 trillion yuan granted in all of last year. If the money were spent, the economy should have been heated already,' he said.

The economy grew 6.1 per cent in the first quarter, the National Bureau of Statistics said on Thursday. The pace was the slowest quarterly output since data collection started in 1992 and weaker than the 6.8 per cent in the previous quarter.

'The loans were not used by many companies,' Mr Yuan said. 'In fact, the money is sleeping in company accounts. Because they have no confidence in the economy at the moment, the owners just deposited the money back in the banks.'

New deposits in the country surged to a 12-month high of 2.45 trillion yuan last month.

Swelling aid

Mainland lenders have granted discounted bills amounting to, in yuan: yuan1.48tr