Banks' lending quotas stay tight despite pain
Beijing is maintaining its tight grip on banks' lending quotas despite growing expectation of monetary easing and calls to phase out the regulators' administrative intervention into banks' operations.
Banks are still not being allowed to grant credit to clients more quickly, though they hope to accelerate loan approvals amid huge demand for financing following harsh monetary tightening last year.
According to two bankers in charge of loan-application assessments, banks have to maintain the slow approval pace that began last year, though they expect it highly likely the regulators will loosen controls on loan issuance.
'There are no signs that we can freely give credit to quality clients in bad need of banking loans,' said a China Construction Bank official. 'The [People's Bank of China] is still wielding its influence on lenders' business practices through administrative procedures.'
The central bank is planning to allow the biggest lenders to increase new loans by 5 per cent in the first quarter, a move that it is believed will benefit cash-hungry businesses and individuals who were shut out from banks last year as Beijing forced lenders to control credit, amid monetary tightening.
Beijing uses lending quotas as a monetary policy tool for macroeconomic control, hampering banks' business development.
At the beginning of each year, the regulators work out a total amount of credit for the full year that each commercial lender can extend to customers. Banks must abide by their loan quota, and are required to submit reports on loan issuance to the regulators. Any bank that fails to comply with the policy will either be warned or ordered to suspend issuing credit temporarily.
Last year, Beijing said it had scrapped lending quotas, yet effectively continued them through administrative powers such as verbal notices to banks to rein in loan growth.
Mainland banks granted a total of 7.47 trillion yuan (HK$9.17 trillion) in loans, which was in line with the 7.5 trillion yuan target set by the central government, according to bankers with knowledge of the regulators' thinking.
In previous years, a lending spree took place in January, as banks fast-tracked loan approvals that they had suspended from the previous year to meet the year's target.
'The expected loan binge has yet to start this year,' a Bank of Shanghai official said. 'We are still waiting for our top bosses' directions.'
Analysts described the planned 5 per cent increase in first-quarter quotas as a 'modest loosening', because Beijing was still closely monitoring the economic situation amid fears that a substantial loosening could undermine its efforts to contain inflation, which rose to 5.4 per cent last year.
Yang Zaiping, executive vice-president of the China Banking Association, a government-controlled group of banks, said in November that Beijing should stop using lending quotas as a policy tool.
Yang's remarks were seen as a sign that the banking regulators were considering phasing out the policy, because the banking association is under the direct oversight of top banking policymakers.
The International Monetary Fund has urged China to further liberalise the banking sector, warning that policy-induced distortions were causing the country's financial system problems.
Hundreds of small enterprises were forced to close down last year because they could not obtain much-need banking loans.
In October, Premier Wen Jiabao, during an inspection tour in Wenzhou, Zhejiang province, pledged more financial support to small companies needing funds for operations.
However, bankers said the promise would not be enough to help cash-starved businesses since banks could not freely grant credit to clients under the existing policy.
'The government will still have a de facto lending quota this year, which is estimated at 8 trillion yuan to 8.5 trillion yuan,' said Zhongde Securities analyst She Minhua. 'A 5 per cent increase in loan value won't lead to a big change in lending practices.'