New RMB loans expected to reach 300-400 bln yuan in Sept.

17:02, October 09, 2009      

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China's new yuan-dominated loans are expected to reach 300 and 400 billion yuan in September, said Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), on October 5. The increase was far below 600 billion yuan of new loans for September expected by the market.

On whether the Renminbi will become an international reserve currency, Liu said that issuing countries of reserve currencies need to shoulder more responsibilities and that it is too early to say whether the Renminbi will become a reserve currency.

Liu said at the 2009 annual meeting of the International Monetary Fund (IMF) and the World Bank (WB) that to support economic growth, China should keep its annual increase rate of new Renminbi loans at about 30 percent. If calculated according to the 4.91 trillion yuan balance of new Renminbi loans last year, standing new Renminbi loans this year will reach nearly 6.4 trillion yuan.

At the end of August however, new loans in the Chinese mainland have already amounted to 8.15 trillion yuan.

Analysts believe that an increase of 30 percent in credit is more suited to China's domestic economic growth. If the increase rate of new loans exceeds 30 percent, the probability of imprudent behavior in terms of credit issuance by commercial banks will increase. Credit risks must be carefully observed therefore.

With the rapid credit expansion in the first half of 2009, the market generally expects that credit increment will drop slightly in the second half.

Lu Zhengwei, chief economist with the Industrial Bank, believes that in September, some banks started to control the amount of new loans under increasing pressure from the capital adequacy ratio, and that the central bank is issuing central bank bills to recover fluidity.

Data showed that the capital adequacy ratio of some banks, and small and medium-sized banks in particular, dropped due to credit expansion. An industry insider pointed out that due to the excessively rapid increase of loans and a shortage of funds, on the one hand, a few small and medium-sized banks have resorted to selling credit assets; while on the other hand, supervisory authorities have limited market access for certain small and medium-sized banks. This restricted the growth of new loans in September to a certain extent.

Moreover, the central bank issued central bank bills to commercial banks issuing relatively more loans at the end of the second quarter. In September, these banks were forced to save 200 billion yuan in the central bank, which was a measure taken to prevent commercial banks from issuing a large quantity of loans at the end of the quarter.

There were also factors supporting a credit increase in September however. Lu believes that growing pressure from local supporting investment may bring about a considerable increase in loans. The notice on further strengthening the implementation and management of the construction investment budget from the central government published by the Ministry of Finance on September 14 pointed out that the follow-up construction investment budget from the central government for regions failing to activate supporting funds will be deducted or postponed correspondingly. To cope with the examination of the central government and seek a new round of central investment support, local governments recently tried every means possible to cover deficient supporting funds. Applying for new loans was one of the important ways for them to raise funds.

In addition, Lu believes that the impact of matured bills on pulling low loans is weakening. The duration of bills is usually between three and six months. A total of 581 billion yuan of new bills were issued between March and May this year, a drop of nearly 400 billion yuan compared to the new increment of 983.4 billion yuan between February and April, therefore, the number of matured bills in September is expected to decrease significantly compared to that of August.

Lu said that short-term loans may continue to increase rapidly in September so as to balance meeting the demand of local supporting funds and the capital adequacy rate reaching the standard at the end of the year, as well as evading the risk of possibly increasing interest rates in the future.

By People's Daily Online
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