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February 22, 2010

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Rules to boost banks' loan oversight

CHINA'S banking regulator has issued two regulations that aim to tighten banks' lending and risk management controls.

Banks must set a lending quota after "prudent calculation" of borrowers' "actual demand" and must not lend excessively, the China Banking Regulatory Commission said in a statement on its Website over the weekend.

Banks are also required to improve risk control after granting loans and to be aware of factors that might influence the repaying capabilities of borrowers through inspections and monitoring, the statement said.

For personal lending, the CBRC asked banks to be more sophisticated in the management of the lending process, especially on the use of the loans, according to the regulation.

Borrowers will not be able to obtain loans without declaring what the funds will be used for, and they should meet bank representatives in person to explain the reasons for the credit, according to the CBRC.

The regulations took effect on February 12, the statement said.

The CBRC asked lenders last month to keep credit growth this year at a reasonable pace and vowed to tighten supervision of property loans amid increased concern about an asset bubble.

Liu Mingkang, the CBRC chairman, said on January 27 the government has set a loan target of 7.5 trillion yuan (US$1.1 trillion) in 2010. New yuan lending in January totaled 1.39 trillion yuan, down 14.2 percent from a year earlier, the People's Bank of China said.

China has raised the deposit reserve requirement ratio twice this year, after holding it steady for over a year, to handle the "comparatively loose liquidity" while keeping the "moderately easy" monetary policy unchanged, the PBOC said.

China's yuan-denominated lending in 2009 hit a record 9.59 trillion yuan, almost double that of 2008.


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