The mainland is tightening the screws on loan growth, this time targeting commercial property buyers from Hong Kong, Macau and Taiwan and capping lending by foreign banks. 'New loan applications to finance commercial units are rejected if applicants are from these areas,' said an official from Bank of Communications in Guangzhou. 'We used to approve such applications, but since the government wants to cool the overheating property market, many domestic banks have started to impose this restriction recently.' Last month, the People's Bank of China released detailed rules restricting lending to second-home buyers, including raising mortgage down payments to 40 per cent from 30 per cent. 'The restrictions on second-home buyers are still enforced strictly. Of course it is impossible for us to turn down all residential mortgage applications, but only those with stable income will be considered,' the banker said. Meanwhile, most commercial lenders have raised significantly the lending rates for small to medium-sized enterprises in response to Beijing's pledge to tighten monetary policy this year. The central bank raised its benchmark interest rate for the sixth time last year, bringing the one-year lending rate to 7.47 per cent. 'We usually set lending rates for customers under the guidance of the China Banking Regulatory Commission,' the BoCom official said, adding that the interest-rate range had been wide - from 5 to 40 per cent - for SMEs. Since the fourth quarter, however, the floor was raised to at least 10 per cent, he said, adding that the bank would 'choose customers with better credit quality'. Foreign lenders are feeling the crunch as well. For the first time, they have been given a ceiling on annual lending and are required to adhere to quarterly loan quotas, just like domestic lenders. A domestic newspaper last month reported that lenders were urged to divide their yearly loan quota into about 35 per cent, 30 per cent, 25 per cent and 10 per cent on a quarterly basis. Individual lenders could adjust the quarterly cap moderately to suit their own needs. 'We will probably use 30 per cent of our yearly loan quota in the first quarter, down from around 40 per cent in the same period last year.' said a Bank of East Asia official in Shenzhen. He said that supply far exceeded demand in the current lending market. Lenders may become more stringent in approving applications and charge higher lending rates. 'Lending rates have increased by 10 per cent in our case. A customer charged 7 per cent in the past would now be charged 7.7 per cent,' he said. Despite various curbs on lending, analysts do not expect a massive slowdown in loan growth this year. 'Banks may reduce their loan growth and boost their fee income from other lines of business,' said Fox-Pitt Kelton banking analyst Warren Blight. 'But overall, the slowdown should be negative only incrementally.'