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The People's Bank of China 'does not grant interest-free loans'.

PBOC branch put under siege after free loan rumour

Armed police called in as hundreds react to false report that bank was offering interest-free loans

The recent cash crunch in the mainland banking system took a new twist when a branch of the People's Bank of China had to suspend operations after it was flooded by more than 1,000 people hoping to get interest-free loans from the central bank.

The branch, in Beihai, Guangxi autonomous region, temporarily stopped offering personal credit reports to individuals, days after it said "criminals" had spread rumours that the PBOC would grant interest-free and subsidised loans to anyone who could show a credit report.

The People's Bank of China is a national financial administrative organ, not a commercial bank ... It certainly does not grant interest-free loans or subsidised loans to anyone

"The People's Bank of China is a national financial administrative organ, not a commercial bank," the branch said in a statement distributed to the crowd of loan applicants outside its offices on Tuesday.

It said it "does not process any individual grants or credit card applications, and certainly does not grant interest-free loans or subsidised loans to anyone".

The branch said the number of people requesting credit reports started to increase last month. On Friday, the bank had more people queueing up than it could handle. At the weekend, hundreds of people gathered outside the branch.

By Tuesday, armed paramilitary police had to hold back a crowd of more than 1,000 people outside the bank, some of whom had spent the night there, refusing to believe the rumours were wrong.

One man told the local news forum Beihai365 he heard that all he needed was a personal credit report and a photocopied ID card to get a 400,000 yuan (HK$502,000) line of credit from the central bank. Nearby print shops raised their photocopying charge to 20 yuan from 10 fen.

By yesterday afternoon, police had taken over from the paramilitary police and were guarding the cordoned-off building. Only a handful of wishful applicants remained, lurking outside the police perimeter.

Police said they were investigating to find out who had spread the rumours. The local police station, a short distance from the branch, said no arrests had been made.

The episode comes amid widespread concerns over tightening bank credit after the central government refrained from boosting liquidity in an effort to rein in an asset-price bubble.

Ballooning local government debt and the rise of the "shadow banking" system have been testing the wits of regulators and policymakers. The cash crunch last month sent interbank borrowing rates to a historical high, reflecting the fragile state of the sector.

This article appeared in the South China Morning Post print edition as: PBOC branch put under siege after free loan rumour
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