April 28 (Bloomberg) -- Bank of Communications Ltd., Shanghai Pudong Development Bank and Shenzhen Development Bank said they stopped lending until May 1, suggesting the government may announce tighter loan policies to help slow economic growth.

``All lending has been suspended,'' said Shi Guang, a loan officer at Shenzhen Development Bank in Shanghai. ``It's possible some new policy will come out during the holiday'' next week.

Bank of Communications ordered its branches to stop making new loans until Saturday, the start of a weeklong holiday in China, and to tighten credit controls, according to an internal memo dated April 27, obtained by Bloomberg News. It also said it will be issuing new credit rules and asked employees to ``practice self-discipline'' when evaluating loan applications.

``We have been admonishing banks to control excessive loan growth,'' said Li Shaopeng, a spokesman with the China Banking Regulatory Commission. He denied the regulator ordered the banks to suspend lending. ``We have never asked banks to suspend new loans.''

China's economy, the world's sixth-biggest, may slow to less than 8 percent growth this year from a six-year high of 9.1 percent in 2003, said Wu Xiaoling, a vice governor of the People's Bank of China. Banks have been asked to cooperate by curbing credit to prevent the economy from overheating, she said.

Lending by Chinese financial institutions rose 21 percent to 17.9 trillion yuan in the year to the end of March.

``Some new rules may be rolled out during the May holiday, so banks suspend lending to prevent speculative borrowing during these days,'' said Li Mingliang, an analyst at Haitong Securities. ``It smacks of a planned economy, and shows how badly the government is controlling the economy.''

Stop Lending

China ordered 11 of its joint stock banks, which control 14 percent of total bank lending, to stop making loans to companies until May 1 to help slow the country's economic growth, the Nihon Keizai Shimbun reported earlier, citing unidentified sources.

``We have already been told to suspend all our loan business until May 1,'' said Guo Yi, a loan officer at the Pudong Development Bank in Shanghai. ``It's a decision from the very top.''

China Minsheng Banking Corp., which is planning to sell shares overseas this year, received a notice from the China Banking Regulatory Commission, calling on it to control lending, said Wang Yanhui, a bank official, without giving further details.

``There is no official notice,'' said Bai Li, a spokeswoman with the central bank. ``Even if there are some commercial banks that decided to stop lending, they made the decision by themselves based on their own situation.''

Big Four

China's big four state banks, including Industrial & Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China, dominate the industry, earning about 61 percent of industry profit in the first quarter and accounting for 56 percent of total lending at the end of 2003, the banking regulator said.

``What would make a difference is if the big four banks behave in a similar fashion even though they haven't had the letter,'' said Andrew Salton, who helps manage about $2.5 billion at Standard Life Investments in Hong Kong. ``These banks are effectively state-controlled and therefore their lending practices aren't dictated by a combination of market conditions and risk management but by letters they receive from the regulators.''

Of the 11 banks with shareholders, five are listed: China Merchants Bank Co., China Minsheng Banking Corp., Shanghai Pudong Development Bank Co., Shenzhen Development Bank Co. and Huaxia Bank Co.

Wen Jiabao

CITIC Industrial Bank, China Everbright Bank, Guangdong Development Bank Corp., Industrial Bank Corp. and Evergrowing Bank Corporation Ltd. are also so-called joint stock companies.

Chinese Premier Wen Jiabao had said he wants lending to steel, cement, aluminum and other industries to slow.

China's State Council yesterday reduced the percentage of debt companies may use in funding steel, cement, aluminum and real estate projects, state-run China Central Television reported. Companies must now put up at least 40 percent of the capital for steel projects and 35 percent for the other three industries, raised from 25 percent previously, the report said.

``The authorities are right to slow it down,'' said David Astor, a fund manager at Hiscox Investment Management Ltd. in London, who manages the FPK Far Eastern Financial Fund. ``They are probably right to try and apply the brakes, though it sounds fairly draconian.''

To contact the reporter on this story: Michele Batchelor in Hong Kong mbatchelor@bloomberg.net

Last Updated: April 28, 2004 06:35 EDT