PBOC issues warning as loans soar

Central bank's monetary policy chief says it will adopt flexible approach to adjusting liquidity

PUBLISHED : Saturday, 18 January, 2014, 1:30am
UPDATED : Tuesday, 21 January, 2014, 9:28am

The mainland's central bank urged commercial lenders yesterday to strengthen liquidity management and set a reasonable pace on lending, even as it pledged to adjust liquidity to help maintain appropriate credit growth this year.

Rising money market rates and bond yields in recent months indicate the People's Bank of China (PBOC) is committed to curbing high debt levels in the economy to head off potential financial risks, but there is little sign of abrupt policy tightening.

"We will use various liquidity management tools in a flexible way and improve the system to appropriately adjust liquidity to maintain reasonable growth in credit and social financing," Zhang Xiaohui, head of the central bank's monetary policy department, wrote in China Finance magazine.

The PBOC has pledged to keep monetary policy largely stable this year.

The central bank warned in a statement after a meeting on money and credit conditions that commercial banks were still keen to expand loans, which have grown rapidly this month.

"Demand for cash will rise significantly as the Spring Festival is approaching," it said on its website. "Monetary and credit departments will issue timely risk alerts and guide financial institutions to strengthen liquidity, asset and liability management and reasonably set the pace on lending to prevent assets from expanding too quickly."

The mainland's money rates jumped this week as liquidity dried up ahead of the Spring Festival holiday, with traders watching to see if the central bank would maintain its passive stance and allow another cash crunch to unfold.

Analysts believe the central bank is likely to make measured use of policy tools, such as short-term liquidity operations, to help lenders weather sporadic cash strains this year.

The Shanghai Securities News reported on Wednesday that the top four state banks speeded up new lending this month, handing over 320 billion yuan (HK$410 billion) in the first 12 days of the month, versus 270 billion over the same period a year earlier.

The newspaper also cited sources saying new loans could top one trillion yuan this month.

The mainland's potential economic growth rate is falling as the population ages, and the economy faces increased resource and environmental constraints and other structural problems, Zhang said.

The central bank must strike a balance between promoting growth, structural adjustments and reforms, while preventing financial risks, she said.

"Faced with these new situations and new problems, the People's Bank of China has always paid attention to appropriately handling liquidity management and interest rate changes, neither relaxing nor tightening monetary policy," she said.