Banking regulator raises lending quota
May 09, 2009 | BY
clpstaff &clp articlesMove is part of larger efforts to stabilise the economy
After record-setting lending growth in Chinese banks in the first quarter of 2009, China's banking regulator has begun a closer watch over the flow of new loans, with tightened supervision on corporate governance and risk control.
Speaking at a recent meeting held at the Chinese Academy of Social Sciences, China Banking Regulatory Commission (CBRC) chairman Liu Mingkang mentioned new regulatory requirements for capital adequacy ratio and provision coverage ratio at the main Chinese banks. The capital adequacy ratio must now be higher than 12%; provision coverage ratio needs to be improved to 150% by the end of the year, he said.
“The raise of the lending quota is one of the government's macro-economic policies, aiming to boost the economy and reduce reserve funds in companies,” said Xu Jianguo, senior partner of Boss & Young in Shanghai. “But it would never like to see the capital flows into the stock market or real estate,” he added.
After the CBRC lifted annual lending quotas of domestic banks last November, lending in Chinese banks has risen quickly. In March, new loans from Chinese banks increased to Rmb1.87 trillion, bringing the first quarter figure to about Rmb 4 trillion. This is close to the Rmb5 trillion target set by prime minister Wen Jiabao recently.
The move comes as part of a series of measures taken by the government to ensure the stability of the sector. According to the China Daily, the CBRC has begun auditing lending growth in Chinese banks to learn what happens to their new loans; authorities have also prohibited commercial banks from transferring funds raised from discounted bills into deposit accounts. As reported by China Law & Practice in April, the regulator has also imposed a new lockup period of five years or more on foreign investors who acquire stakes in Chinese banks.
China's financial institutions are governed by the Lending General Provisions which took effect in 1996, but lawyers say these are seen as too general and outdated for today's economic climate.
Hubert Tse of Yuan Tai PRC Attorneys said that the CBRC will promulgate its so-called One Guideline Three Measures (一指引三办法) as supplementary rules to the Lending General Provisions in order to “strengthen the risk disclosure of credit loans, implement effective risk control and enforce the beneficiary principle (that the bank shall remit loans into payee's account directly)”.
The new rules are the Measures for the Administration of Working Capital Loans (流动资金贷款管理办法), Measure for the Administration of Fixed Asset Loans (固定资产贷款管理办法), Measures for the Administration of Personal Loans (个人贷款管理办法) and Guidelines for Project Finance of Financial Institutions of the Banking Sector (银行业金融机构项目融资业务指引). It is not known when they will be issued.
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