Chinese Loan Rates Rise, Loan Clampdown Bites
Published: Wednesday, 3 Feb 2010 | 2:39 AM ET Text Size By: Reuters
A major Chinese bank has raised mortgage rates in one of the first signs of how the government's lending clampdown is rippling through the economy and could tame turbo-charged growth but spook investors.
Bank of China's decision to roll back mortgage discounts came after banks throughout the country aggressively called in loans in the second half of January to fall into line with the government's directive to slow lending.
Regulators have also issued banks with strict lending quotas and begun demanding daily notification of loan volumes in order to avoid a credit surge at the start of year and keep lending flows more balanced over coming months, local media reported.
"If loans are called back, and more importantly, if it is increasingly difficult to get new credit, it will be bad for the real economy," said Zhang Lei, an analyst with Bohai Securities in Tianjin.
That, to a certain extent, has been the government's game-plan after annual GDP growth leapt to 10.7 percent in the fourth quarter, stoking fears about overheating and inflation.
But the tightening of liquidity has weighed heavily on investor sentiment. The benchmark Shanghai Composite Index tumbled 9 percent in January, more than the MSCI Asia ex-Japan index's 6 percent fall.
The credit clampdown and other measures to cool the real estate market have also started to bite, with property transaction volumes falling steeply and prices also easing in some cities, according to the China Real Estate Index Academy.
Bank of China, the country's third-largest bank by market capitalisation, said it would no longer offer home buyers the discount mortgage rates that the government had introduced in 2008 to stimulate the then-flagging property sector.
Nationwide property prices rose 7.8 percent year-on-year in December and soared even higher in some locales, driving the government to use taxes and credit controls to let the air out of any real-estate bubble.
Less Lending
The country's biggest banks lent heavily in January but less than in the same month last year, cutting their credit issuance under heavy government pressure, sources told Reuters.
China Construction Bank (CCB) extended 102 billion yuan ($15 billion) in new loans, while Bank of China lent about 150 billion yuan.
Industrial and Commercial Bank of China, the world's largest bank by asset value, lent about 110 billion yuan, which the 21st Century Business Herald said said was 50 billion yuan lower than its total at the mid-point of January.
Overall new yuan loans issued by Chinese banks fell to less than 1.1 trillion yuan as of Jan. 28 from 1.45 trillion yuan in the first 19 days of the month, after the central bank ordered lenders to recall some loans, according to the Caiing magazine website.
Banks appeared to be mainly paring back discounted bills, a form of short-term financing, which swelled loan totals at the start of last year and did more to fuel stock and property market speculation than real investment activity.
Still, analysts said monetary conditions remained quite loose with China targeting a hefty 7.5 trillion yuan in new credit over the full year, but that authorities wanted banks to better balance loans and desist from the kind of surge unleashed at the start of 2010.
"New lending is seen at 7.5 to 8 trillion yuan, which represents a 20 percent increase in credit. Such growth can not be said to be tightening," Yvonne Zhang, an analyst at Moody's in Beijing, said.
Quotas
Nevertheless, the government has made clear over the past two weeks that it has little faith in the banks arriving at that target in a reasonable manner by themselves and they must be watched every step of the way.
Beijing has set a banking sector-wide ceiling of 2.4 trillion yuan in new loans for the first quarter, the 21st Century Business Herald reported. That would be about one-third of the full-year 7.5 trillion target, adhering to the pattern of front-loaded lending seen in previous years.
The newspaper also said that authorities have allocated full-year loan quotas to each of the country's biggest banks:
600 billion yuan for Bank of China
850 billion yuan for ICBC
750 billion yuan for China Construction Bank
700 billion yuan for Agricultural Bank of China
The China Banking Regulatory Commission (CBRC) denied last month that it was implementing bank-specific loan quotas, which have been used in the past to strictly guide lending.
No Yuan Appreciation Before June: Roach
Copyright 2010 Reuters. Click for restrictions.
