Analysts say increase in loan growth not as substantial as industry figures suggest Routine 'bill financing' accounted for more than half of the loans the mainland's largest bank by assets granted last month, underscoring concerns that the lending upsurge Beijing recently hailed as a sign of economic recovery may be inflated. Industrial and Commercial Bank of China extended 135 billion yuan (HK$153.12 billion) in 'bill discount loans' and 117.1 billion yuan of other loans last month, the lender said yesterday. In discounting a bill, the bank takes on a company's bill to a buyer before it is due and credits the value of the bill, after a discount charge, to the customer's account. In non-bill discount loans, the bank offered 69.3 billion yuan to fund power grids, railways, toll roads and other infrastructure projects - 27 per cent of its total 252.1 billion yuan in new credit for January, the bank said. 'Bill discount loans are guaranteed by a second bank,' said Goldman Sachs in a report. 'Banks are still generally cautious about directly making working capital loans to corporates, especially to small and medium-sized enterprises.' ICBC's 252.1 billion yuan in incremental loans amounted to more than 20 per cent of the more than 1.2 trillion yuan in fresh credit at mainland banks last month. The country's new loans in January surged 49 per cent from a year earlier and represented a further expansion from December's 771.8 billion yuan and November's 476.9 billion yuan. The mainland's top leadership has welcomed the loan boom, supposing the flood of funds went to embattled companies and infrastructure projects included in a 4 trillion yuan fiscal stimulus scheme. Analysts said that of the 1.2 trillion yuan in loans made in January, about 65 per cent or 780 billion yuan were estimated to be 'real' loans. That was slightly lower than last year, meaning the loan surge was largely illusory. 'Banks are snapping up quality clients and projects,' a credit officer at a large bank said. 'The more an enterprise does not need money, the more willing banks are to lend to it.' Banks generally only lend to quality small enterprises with loan yields of 6 per cent to 7 per cent, or 10 to 30 per cent above benchmark loan rates, according to Goldman Sachs. With the share of discounted bill financing in monthly incremental loans rising sharply from 5 per cent to 33 per cent over the past five months, the proportion of medium to long-term loans has shrunk from 50 per cent to 32 per cent. Thus, the strong lending growth's boost to fixed-asset investment was limited, China International Capital Corp said in a report. The truth may be a blow to mainland officials who are eager to see the economy on track to a recovery, but it could offer relief to bank shareholders in the short term. A surge in discount bill business reflected banks' willingness to sacrifice net interest margins for tighter control over asset quality, which was a good business decision against the backdrop of the global recession, said BNP Paribas analyst Doris Chen. The rapid loan growth might also delay further monetary easing policies such as lending rate cuts or interest rate deregulation, which might be incrementally positive for banks' net interest margins in the near term, said Goldman Sachs. Economists expect Beijing to cut lending rates by up to 135 basis points this year. Banking sources said the central bank might push them to allow an up to a 30 per cent discount on government benchmark lending rates, above the 10 per cent discount many mainland banks gave to quality borrowers.