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November 24, 2009

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CBRC warns banks to control lending and manage risks

The banking regulator yesterday ordered Chinese banks to control lending and manage risks better amid concern that a rapid, stimulus-fueled credit boom this year might affect the industry's health.

The credit boom began to ease in July, but economists have warned that reckless lending could leave banks saddled with bad loans. The government worries excess lending might be driving dangerous overexpansion in some industries.

Banks were told to maintain a "stable and sustainable pace" of lending through the end of this year, the China Banking Regulator Commission said on its Website. It gave no financial targets.

Banks lent about 1 trillion yuan (US$125 billion) per month in the first half of the year after the government ordered them to expand credit to support its 4-trillion-yuan stimulus.

Lending fell to less than half that level since July after banks were ordered to scrutinize borrowers more carefully.

China's state-owned banking industry is financially healthy, having avoided the mortgage-related turmoil that battered Western institutions. It has been one of the government's most important tools in carrying out its stimulus, which calls for some 75 percent of planned spending to be financed not by the government but by banks and state companies.

Total lending in the first 10 months of the year was 8.9 trillion yuan, far above the official target of 5 trillion yuan for the full year. October lending was down 51 percent from September.

The CBRC told banks to conduct more rigorous inspections of borrowers and lending.

It said banks with low ratios of capital to outstanding loans and no plans to remedy the problem would face restrictions on such areas as overseas investment and business expansion.

The government announced investment curbs in September on steel, cement and some other industries to stop what it said was excessive investment that could lead to financial problems and job losses.

This year, China has repeatedly warned domestic banks of the growing risks of over-extending domestic loans, and has moved to tighten lending policy in recent months.

However, China has to tread cautiously as many small- and medium-sized enterprises, which contribute more than half the country's economic growth, have complained about how tough it is to get bank loans.

Meanwhile, the banking regulator denied it was asking big banks to meet a 13-percent capital adequacy ratio.

However, it said: "For those financial institutions in the banking sector that lack feasible plans for supplementing their capital, the CBRC will restrict their market access, investment, branch expansion and business expansion."


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