China yesterday threw markets into confusion on the eve of the release of December quarter and 2009 annual economic figures with reports that banking regulators had ordered a halt to lending.
The reports varied, some said all banks were instructed to halt lending, others said a number of major banks were told to stop making loans for the rest of this month.
The news came as a shock and send markets into a tizzy. The Australian dollar fell by more than one US cent as investors sought safety.
Global sharemarkets were uncertain as well: Australia’s lost ground in the afternoon.Wall Street had its biggest fall since last November.
The news also came after reports in some Chinese and western media earlier this week that banks had lent an incredible 1.1 trillion Yuan in the first two weeks of this year!
Bloomberg reported that the order was made after some banks had failed to meet requirements including those for capital.
Bloomberg quoted Liu Mingkang, chairman of the China Banking Regulatory Commission.
The CBRC hasn’t asked all Chinese banks to halt lending, Liu said in an interview in Hong Kong yesterday.
He didn’t identify which banks were told to limit loans.
“We have a number of regulatory requirements to ensure prudent supervision,” Liu said. “For those that failed to meet these standards, we told them to limit lending.”Mr Liu also revealed the new loan target for China for 2010.
He said 7,5 trillion Yuan, up 16% in total outstanding loans on an annual basis, but sharply under the 9.5 trillion Yuan actually lent last year. and would mark a sharp deceleration from the 32 per cent rise in 2009.
Mr Liu said Chinese banks had been told to “heighten vigilance” against a rise in credit risks.
He said the regulator was taking action against those banks that were concentrating lending risks.
He also said the commission had placed 190 banking institutions under better examination, although he did not name them, and said that some had been asked to limit lending because they had failed to meet certain requirements, including adequate capital levels.
"The official China Securities Journal on Wednesday cited unnamed banking sources as saying that some banks had been told to stop all lending, including short-term bills, for the rest of the month.
"Big branches of the Bank of China received a notice from their headquarters to stop all bill issuance until further notice; the newspaper cited one unnamed source as saying.
"A senior official with China Merchants Bank and a senior executive with Agricultural Bank of China both told Reuters that their banks would stop approval of new loans until the end of January."
Chinese banks went on an orgy of lending in 2009, boosting loans to a record 9.59 billion Yuan ($US1.4 trillion), compared with the official state limit of 5 trillion Yuan.
Chinese Premier Wen Jiaboa was quoted on Tuesday as saying that China will “well manage” the pace of credit growth.
That was after China last week raised the proportion of deposits banks must set aside as reserves for the first time in 18 months by 0.5% to 16%.
It also boosted official short term rates on Tuesday for a second time in as many weeks to try and make the cost of money more expensive for banks and borrowers.
Bloomberg said Mr Liu had said in the Hong Kong interview that Chinese regulators track more than 10 indicators for the nation’s banks.
“If you fail one of them, your loan expansion will be limited. That said, financing for good existing projects will be guaranteed.”
That would seem to indicate that existing loans will continue to be financed. "Good’ was not defined.
Bloomberg said the Industrial and Commercial Bank of China, the Bank of China and other lenders "have effectively stopped granting new loans after the banking system extended about 1.5 trillion Yuan in new credit during the first two weeks of this month".
It was quoting a paper called Market News International.
This week’s second lift in official market rates by the central bank (the People’s Bank of China) saw its benchmark one-year bill yield hit a 14 month high of 1.9264%.
The yield rose 0.08%, matching last week’s increase. The central bank is also selling more securities into the market to drain cash from the system and reduce the amount available for banks to borrow.
Yesterday’s news also follows a report on Monday night in official Chinese media quoting a spokesman of the China Banking Regulatory Commission (CBRC) who said commercial banks should meet requirements for capital adequacy and provision coverage, and should improve risk management.
