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Stimulus packages see new loans rise at record rate

China's new loans rose by a record in January and money supply expanded at the fastest rate for more than a year, riding on China's stimulus packages to bolster the economy.

Banks extended 1.62 trillion yuan (US$237 billion) in new local-currency loans and M2, the broadest measure of money supply, climbed 18.8 percent from a year earlier, the People's Bank of China said today on its Website.

M2, which includes cash and all deposits, gained 17.8 percent in December.

The outstanding value of yuan loans rose 21.33 year-on-year to 31.99 trillion yuan at the end of January.

Chinese banks are following the government's call to support the economy by granting more loans.

"Banks are dashing to offer loans to government-driven projects as these projects' risk exposure is less," said Lu Zhengwei, Industrial Bank's chief economist. "But explosive lending growth is unsustainable and will likely decelerate in the second half."

Economists said banks are exposed to higher risks if the rising loan quantity is coupled with declining loan quality.

Chinese banks are predicted to post lower profitability this year on the economic slowdown and smaller interest margins.

The central government announced a 4-trillion-yuan stimulus package in November with investment in infrastructure a focus. The central government also called for the finance industry to support it during the tough times.

The People's Bank of China has cut interest rates five times since September when the new round of financial crises morphed into a global economic downturn. The central bank also trimmed banks' reserve requirement and scrapped the lending quota to thaw liquidity.

Chinese residents put 1.53 trillion yuan in new savings into bank accounts in January. It's common to see an increase in household savings during an economic slowdown and with a sluggish capital market.


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