National Development and Reform Commission

Big lenders resisting loan rate cuts

PUBLISHED : Saturday, 13 October, 2012, 12:00am
UPDATED : Saturday, 13 October, 2012, 5:19am

The mainland's biggest banks are resisting government pressure to lower borrowing costs amid an economic slowdown as they seek to maintain the profitability of their lending operations, officials at the top four lenders said.

The banks were limiting discounts for their best corporate clients to 10 per cent of the benchmark lending rate, the officials said, asking not to be identified.

The central bank in July began allowing lenders to offer credit at 30 per cent less than the benchmark rates.

Keeping borrowing costs high may blunt efforts to revive growth that has decelerated for six straight quarters in the world's second-largest economy.

Credit expansion was also limited by the central bank's loan quotas, the officials said, highlighting the conflicting efforts within the country to curb bad debts while boosting funding for local governments' infrastructure projects.

"Banks can no longer afford to ramp up lending recklessly, as they've learned a lesson from the past and their operating environment has deteriorated significantly," said Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp.

"The lack of consensus from the top on whether and how to fund local governments' stimulus projects strengthens our view that China's economic recovery will be L-shaped."

The central bank was worried about a rebound in bad loans, deputy governor Liu Shiyu said in Beijing yesterday.

The deteriorating asset quality at banks was linked to the economic slowdown, Liu said.

The People's Bank of China and the China Banking Regulatory Commission aim to avoid a repeat of the two-year, 17.6 trillion yuan credit boom that propelled economic growth following the 2008 financial crisis.

That spending binge fuelled inflation and led to three straight quarters of growth in soured loans by the end of June, marking the longest streak of deterioration in eight years.

The nation's top planning agency and local governments, meanwhile, are pushing for credit to fund projects.

The National Development and Reform Commission had approved more than 700 billion yuan (HK$865.8 billion) of road and railway construction by the end of August, the 21st Century Business Herald reported.