Fitch says slower credit rise premature

08:15, December 06, 2010      

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China's credit growth this year has not slowed materially from the rapid pace in 2009 despite headline data pointing to a slowdown, Fitch Ratings said in a report yesterday.

The rating agency said that Chinese banks have been off-loading trillions of yuan in loans this year by artificially reducing their holdings of discounted bills and by re-packaging the loans into investment products for sale to investors.

The report came on the same day that China said it would change to a "prudent" monetary policy in 2011 from a "relatively easing" stance.

"Talk of a substantial slowdown in credit growth in China is premature, but understandable given the visible drop in official figures on net new loans," said Charlene Chu, head of Fitch's financial institution ratings in China. "However, in reality lending has not moderated, it has been diverted into other channels."

According to the report, the balance of Chinese banks' discounted bills was understated by as much as 1.65 trillion yuan (US$250 billion) at end of the third quarter.

A discounted bill is an accepted draft against which a loan is made and the interest is deducted immediately. Through the action, bill holders can acquire cash before its maturity date at lower rate. It could be a channel for companies to get capital while bypassing the loan quota.

Banks held more than 2.5 trillion yuan (US$375 billion) in credit not reflected in their balance sheets in wealth management products at the end of November.

"Adjusting for these factors, the amount of new credit extended through the end of the third quarter was on par with the 9.3 trillion yuan extended in the same period a year ago," Chu said. "Credit conditions remain loose, which explains why inflation and property prices stay stubbornly high."

Source: Shanghai Daily


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