China is allowing the nation’s five biggest banks to increase first-quarter lending and weighing a plan to relax capital requirements as economic growth cools.
The central bank will let the larger lenders increase new loans by a maximum of about 5 percent from a year earlier, according to two people at state lenders who have knowledge of the matter. The banking regulator is delaying implementing the most stringent capital adequacy ratios and may lower risk weightings for loans to small businessmen and companies, four people said separately.
Chinese policy makers are under pressure to ease credit after growth in the world’s second-biggest economy moderated to the slowest pace in 10 quarters as Europe’s debt crisis capped export demand and home sales slipped. Premier Wen Jiabao aims to sustain the expansion without re-inflating property-price bubbles or driving up consumer prices.
The steps are “policy easing and fine-tuning and both measures aim to support the real sector of the economy,” said Liu Li-Gang, an economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, who previously worked at the World Bank. “This year, credit conditions will be more relaxed than last year.”
The Shanghai Composite Index closed 1.3 percent higher. Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, rose 1.9 percent in Hong Kong, while China Construction Bank Corp. gained 2.5 percent.
China’s growth cooled to 8.9 percent in the fourth quarter, the statistics bureau said this week. Reports yesterday showed foreign direct investment and home prices slid in December.
“The government’s major task will be maintaining stable economic growth this year,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “We should be seeing more pro-growth measures going forward and easing restrictions on lending is a good start.”
The guidance from the People’s Bank of China to the big lenders on first-quarter new loans amounts to “modest” loosening, said Chang Jian, an economist at Barclays Capital in Hong Kong who has formerly worked for the Hong Kong Monetary Authority and the World Bank. ICBC, Construction Bank, Bank of China Ltd., Agricultural Bank and Bank of Communications Co. are the nation’s five biggest lenders.
The central bank also said that 30 percent of full-year lending should be in the first quarter, with the same amount in the second and 20 percent in each of the final two quarters, the people said. The PBOC won’t comment on anything related to credit quotas, a press official said in Beijing yesterday.
The China Banking Regulatory Commission may allow banks to increase the excess bad-loan reserves used in calculating risk buffers, the four people said. A press official for the CBRC, who refused to be named due to the agency’s rules, declined to immediately comment.
The risk weighting on personal operating loans given to small businessmen may be cut to 75 percent from the current 100 percent, while the ratio on loans to small and micro-sized firms would be lowered to 50 percent from 75 percent, two of the people said. The banks had 14.6 trillion yuan ($2.3 trillion) of such loans outstanding in August, accounting for 27 percent of total advances, according to the CBRC.
The regulator is yet to complete setting how capital requirements will be calculated, and hasn’t told banks how long the implementation may be delayed, the people said this week.
Resisting Local Demand
Separately, the CBRC has told lenders to contain risks tied to local government debt, a person with knowledge of the matter said this week.
China warned its banks to resist demand for credit from local governments as new officials in cities, towns and villages pursue projects that bolster growth, the person said.
The banking commission told lenders this month to be on watch for loan applications for new programs disguised as funding requests for unfinished ones, said the person, declining to be identified as the order isn’t public.
Requests may increase as local leaders appointed in a nationwide shuffle seek funds to help create jobs in their regions, the person said. A press official at the banking regulator, who declined to be identified because of the agency’s rules, said he couldn’t immediately comment.
China’s lending peaked in 2009 as officials allowed a credit boom to counter the effects of the global financial crisis. New local currency loans fell year-on-year in the first quarters of 2011 and 2010. In the first three months of last year, the amount was about 2.26 trillion yuan ($360 billion), Bloomberg data shows.