Small banks get the upper hand from new policy

08:15, September 27, 2010      

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By Wang Xinyuan

New rules allowing banks to sell assets to each other will help lenders free up cash by off-loading less lucrative loans.

Twenty-one banks agreed in Shanghai Saturday to sell loans on China's interbank market after the government recently approved such transactions for the first time.

"The move provides the banks with some flexibility under the tightening regulatory environment," said Zhang Youxian, an analyst at the Bank of China's Institute of International Finance.

Allowing banks to transfer loans will let large banks free up cash by selling existing loans and lend on new projects with higher returns. This move should especially benefit smaller banks by enabling them to buy loans that they wouldn't normally have access to, Zhang said.

The move comes amidst tightening regulations on the banking industry aimed at heading off the overheating real estate market and the rising number of non-performing loans.

The government capped new lending at 7.5 trillion yuan ($1.12 trillion) in 2010, down 22 percent from a record high of 9.6 trillion yuan ($1.43 trillion) last year.

Total new lending for the first eight months of this year reached 5.7 trillion yuan ($850.75 billion) nationwide.

In addition to the reduced amount of loans given out, banks are not allowed to use more than 75 percent of the deposits they take in for lending. Also, large State-owned banks are required to have at least 11.5 percent of their loans in capital, while for smaller banks that figure is 8 percent.

To lend more, many listed commercial banks supplement their capital by issuing shares on the stock market.

The Bank of China, China Construction Bank, Industrial and Commercial Bank of China and Bank of Communications plans to finance 287 billion yuan ($42.84 billion) this year on the stock markets to support their lending efforts.

Source: Global Times

(Editor:祁澍文)

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