China to ask banks to cut credit for rest of year

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BEIJING, April 6 (Bloomberg): China’s central bank has asked the country’s major lenders to curb loan growth for the rest of the year after a sharp increase in the first two months that fueled bubble risks, according to people familiar with the matter.

In a meeting with the People’s Bank of China on March 22, banks were urged to keep total advances in 2021 at about the same level as last year, people said, asking not to be identified because the case is private. Some foreign banks have also been urged to curb new lending through what’s known as window orientation after increasing their balance sheets in 2020, one of the people said.

The comments go into more detail on what the central bank said publicly after the meeting, when it said it asked representatives of 24 major banks to keep lending growth stable and reasonable. In 2020, banks distributed a total of 19.6 trillion yuan ($ 3 trillion) in credit, of which about a fifth was for inclusive finance such as loans to small businesses.

With the coronavirus largely contained and the economy rebounding, Chinese policymakers have renewed a campaign to limit risks, especially in the financial and real estate sectors. The prospect of higher interest rates and fewer bad loans could boost the profitability of banks, which saw their incomes plummet after being enlisted to help borrowers get cheap credit during the pandemic.

The PBOC did not immediately comment.

Chinese banks granted a record 4.9 trillion yuan in new loans in the first two months, up 16% from the same period last year, according to official data. The central bank asked banks in February to keep new lending in the first quarter at about the same level as last year, if not lower, the Financial Times reported earlier.

The PBOC wants banks to focus on lending in areas such as innovative technologies and manufacturing, she said at the March meeting. Earlier this month, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, warned of bubbles in the real estate and financial markets, fueling fears that policymakers would start to tighten monetary policy.

The Chinese government is using the economic recovery to get out of debt, a long-standing goal suspended during the trade war with the United States and further delayed by the pandemic. Last year’s stimulus measures pushed debt to nearly 280% of annual economic output.

The economy racked up much of its record debt after the global financial crisis, when it rushed into credit to avoid the economic collapses ravaging the West. Efforts in 2017 to curb debt growth, especially in shadow banking, led to higher money market rates and a collapse in government bonds. -Bloomberg

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