Central bank, regulator spar over loan target

08:39, January 25, 2011      

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The central bank and the banking regulator both want to restrain lending this month, but they are at loggerheads over how to set the ceiling and how to enforce it, local media reported Monday.

The report, citing several unidentified sources, said the People's Bank of China proposed an industry-wide loan quota of 900 billion yuan ($137 billion) for January, while the China Banking Regulatory Commission preferred a target of 1 trillion-1.2 trillion yuan ($151.78- 182.14 billion).

As a centerpiece of its economic policy, China sets loan quotas to control credit issuance by banks. That practice has taken on extra urgency this month because banks have unleashed their customary early-year lending surge at the same time as officials are trying to slow credit growth to rein in inflation.

"The central bank and the banking regulator are at odds over some issues, ranging from the lending target to the tools to be used to control lending," the Chinese-language New Century Weekly reported, paraphrasing unnamed bankers.

The influential financial magazine did not give any details about the disagreement over the tools to be used. The central bank has been pushing for a so-called dynamic differentiated required reserve ratio system, whereby it would regularly adjust reserve ratios to force the heaviest lenders to lock up a greater portion of their assets. The report said some of the nation's largest banks have issued notice to their local branches, urging them to strictly control their lending pace or temporar-ily lose the right to continue issuing credit.

Source: Global Times
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