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September 5, 2009

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Years to cut cross-bank bond holdings

CHINA'S banking regulator said it will take several years to phase out cross-bank holdings of subordinated bonds.

The move to cut out the holdings will help improve the investing structure of subordinated bonds, the China Banking Regulatory Commission said in a statement via a short message sent by mobile phone yesterday. But the CBRC said it won't cut the issuance of subordinated bonds by banks.

A subordinated bond is one means for banks to expand capital. Chinese banks sold 236.7 billion yuan (US$34.66 billion) worth of subordinated bonds this year, almost tripling those issued last year, according to Bloomberg data.

Meanwhile, the CBRC also said in a separate statement that it has stopped some joint stock banks from granting new loans as their capital adequacy ratio fell close to the regulatory minimum of 8 percent.

Banks such as Shanghai Pudong Development Bank and China Minsheng Banking Corp, whose CAR dropped close to the minimum requirement, are seeking to sell shares to relinquish capital.

The two stricter capital requirements came amid a backdrop of a rapid credit expansion this year.

Chinese banks have been increasing credit in the first half of the year although growth in new loans started to slow in July and August.

Banks in China have lent 7.73 trillion yuan of yuan loans in the first seven months of this year, a jump of 173 percent from a year ago.

The new loans have already surpassed the 5 trillion yuan target for 2009 that was set at the start of this year, causing analysts to worry the credit boom helped spark asset bubbles.

The CBRC also imposed a stricter condition to ensure a more healthy credit growth.


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