China Economy

Banking regulator may raise loan limit

Law stopping banks lending more than 75 per cent on deposits may be fine-tuned

PUBLISHED : Tuesday, 29 January, 2013, 3:16pm
UPDATED : Tuesday, 23 January, 2018, 11:43am

The mainland banking regulator is fine-tuning an 18-year-old ceiling on bank loans.

Mainland banks cannot lend more than 75 per cent of their outstanding deposits, according to a 1995 commercial bank law. While regulators check the ratio on a monthly basis, banks often try to attract deposits by offering high rates and moving loans off balance sheet to dodge the rule.

Shang Fulin, chairman of the China Banking Regulatory Commission, recently told a meeting with banks that the regulator was looking into the requirement and trying to improve the appraisal system, bankers said.

The banking regulator did not reveal how the ceiling rule would be adjusted, but bankers are already hailing the change as one that will boost their bottom lines.

Zong Liang, deputy head of the international finance institute at Bank of China, said: "It would be an important reform. Lending will increase moderately to support economic stabilisation. Also, banks' competitiveness will be enhanced."

Banks on the mainland issued 8.2 trillion yuan (HK$10.1 trillion) in new loans last year, or 52 per cent of the so-called total social financing, which includes bank loans, bond and equity issues, entrusted and trust loans. The proportion was 6.1 percentage points lower than the 2011 figure.

Banks have been calling for an end to the 75 per cent rule, which was introduced to ease inflation. But the restriction also slows lending and cramps net interest margins, a major source of profits for Chinese banks.

While the country is trying to align new liquidity rules with practices recommended by the Basel Committee on Banking Supervision, many lenders are using the opportunity to lobby the regulator to change the 75 per cent requirement.

Suggested changes include allowing lenders to incorporate interbank deposits in calculating outstanding deposits, thereby allowing the ratio to fluctuate 3 to 5 percentage points around the 75 per cent ceiling; and checking the ratio at the end of every year rather than every month.

Guo Tianyong, a professor at the Central University of Finance and Economics in Beijing, said: "The requirement should be loosened … to some degree. However, I oppose scrapping the requirement. Once it is removed, banks, especially small- and medium-sized ones, will aggressively increase lending."