Related News
Local government financing probed
By Zhang Fengming |
March 8, 2010, Monday
|
Online Edition
Online Edition
SHANGHAI'S banking regulator is ordering banks to restrict credit to financing arms of local government as part of a nationwide review over rising concerns of rising defaults.
The Shanghai Bureau of the China Banking Regulatory Commission today asked banks to scrutinize their existing loans to finance companies of local government, especially those issued at the end of 2009, and to halt credit to uncapitalized projects.
"Banks must check each such loan case by case, confirming project capital, land approval, collateral and the final use of the credit to make sure that each loan is extended with a solid basis," said the local banking regulator.
Banks are required to take back the credit extended to over-capacity industries or was abused or not used, the regulator said.
The local tightening-up is part of China's nationwide check on loans to financing arms of local governments.
Local governments sidestep restrictions on them by raising capital directly through these arms, which play a big role in maintaining local economic growth and providing better infrastructure.
However, banks may have played loose when issuing credit to the government-backed entities during the heady days of growth.
Banks in China doled out 9.6 trillion yuan (US$1.4 trillion) of new loans in 2009 - almost double the 5 trillion yuan target - to shore up economic growth and deflect the impact of the global financial crisis.
The wave of credit helped China's economy grow 8.7 percent last year. However, it also brought side-effects of high-flying assets prices and risks of rising bad loans.
Zhou Xiaochuan, the People's Bank of China governor, told the National People's Congress on Saturday many local financial vehicles have the ability to repay bank loans but two types trigger concerns. One uses land as collateral, while the other can't fully repay borrowings, meaning that local governments may be liable, leading to fiscal risks.
Bank of China President Li Lihui said last week that the bank has reviewed such loans and found some may default.
While Jiang Jianqing, chairman of the Industrial and Commercial Bank of China, flagged similar situations, noting that risky projects do exist but are limited.
China is beefing up efforts to ensure that last year's record credit growth won't lead to rising sour loans.
China has already increased the issuance rates on central bank bills, asked banks to freeze more money from credit and put a lid on banks' credit to risky or over-capacity industries through the so-called "window guidance."
The Shanghai Bureau of the China Banking Regulatory Commission today asked banks to scrutinize their existing loans to finance companies of local government, especially those issued at the end of 2009, and to halt credit to uncapitalized projects.
"Banks must check each such loan case by case, confirming project capital, land approval, collateral and the final use of the credit to make sure that each loan is extended with a solid basis," said the local banking regulator.
Banks are required to take back the credit extended to over-capacity industries or was abused or not used, the regulator said.
The local tightening-up is part of China's nationwide check on loans to financing arms of local governments.
Local governments sidestep restrictions on them by raising capital directly through these arms, which play a big role in maintaining local economic growth and providing better infrastructure.
However, banks may have played loose when issuing credit to the government-backed entities during the heady days of growth.
Banks in China doled out 9.6 trillion yuan (US$1.4 trillion) of new loans in 2009 - almost double the 5 trillion yuan target - to shore up economic growth and deflect the impact of the global financial crisis.
The wave of credit helped China's economy grow 8.7 percent last year. However, it also brought side-effects of high-flying assets prices and risks of rising bad loans.
Zhou Xiaochuan, the People's Bank of China governor, told the National People's Congress on Saturday many local financial vehicles have the ability to repay bank loans but two types trigger concerns. One uses land as collateral, while the other can't fully repay borrowings, meaning that local governments may be liable, leading to fiscal risks.
Bank of China President Li Lihui said last week that the bank has reviewed such loans and found some may default.
While Jiang Jianqing, chairman of the Industrial and Commercial Bank of China, flagged similar situations, noting that risky projects do exist but are limited.
China is beefing up efforts to ensure that last year's record credit growth won't lead to rising sour loans.
China has already increased the issuance rates on central bank bills, asked banks to freeze more money from credit and put a lid on banks' credit to risky or over-capacity industries through the so-called "window guidance."
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
