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China’s New Rules May Curb Credit Growth, CBRC Official Says

China’s Draft Rules May Curb Credit Growth,
The company logo for the Industrial & Commercial Bank of China Ltd. (ICBC) is seen outside a branch in Beijing, China. Photographer: Nelson Ching/Bloomberg

China plans to retain a cap on loans at 75 percent of deposits and may add further requirements that constrain credit growth under draft rules, a senior official at the banking regulator said.

The liquidity-risk management regulations may be more stringent than the loan-to-deposit ratio set by the nation’s commercial bank laws, the China Banking Regulatory Commission official said, asking not to be named because the discussions aren’t public. The comments refute a report in the Economic Information Daily, which said today that the ratio won’t be included in the new rules and may be scrapped.

Shares of banks fell in Shanghai on concern that the limits may curtail loan growth. The regulator is imposing controls to reduce the risk of defaults as policy makers cut interest rates and lower lenders’ reserve requirements to arrest a slowdown in the world’s second-biggest economy.

“The loan-to-deposit ratio has proved to be the most effective tool in reining in lending and preventing liquidity risks at Chinese banks,” said Luo Yi, a Shenzhen-based analyst at China Merchants Securities Co. “The government won’t let it go easily. All it needs to do is to not tightly enforce the ratio when the regulator really wants to ease credit.”

Industrial Bank Co. slid 1 percent to 13.01 yuan and China Citic Bank Corp. fell 0.5 percent to 4.02 yuan, leading declines among lenders in Shanghai trading. The reaction in Hong Kong was mixed, with shares of Bank of China Ltd. falling 1 percent to HK$2.91 while Industrial & Commercial Bank of China Ltd. rose 0.2 percent to HK$4.29.

Slower Growth

Economic growth has slowed for five straight quarters, with gross domestic product expanding 8.1 percent in the three months ended March 31. That’s the weakest in almost three years. The central bank in June cut interest rates for the first time since 2008, and the government is accelerating approvals for investment projects.

The new rules will include a so-called liquidity coverage ratio, aimed at ensuring an adequate level of cash and near-cash assets to meet funding needs for 30 days, as well as a net stable funding ratio to support credit growth and other operations, the CBRC official said.

The proposed rules, being drafted to implement international Basel III capital guidelines, haven’t been submitted to the cabinet yet, the official said.

Lending Slowdown

New lending in May was 793.2 billion yuan ($125 billion), compared with the 700 billion-yuan median forecast in a Bloomberg News survey of 29 economists and the 681.8 billion yuan advanced by banks in April. Still, new loans in 2012 may be as low as 7.3 trillion yuan to 7.5 trillion yuan, short of a target of 8 trillion yuan to 8.5 trillion yuan, Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia, wrote in a note yesterday.

Policy makers have refrained from introducing stimulus on the scale unleashed during the global financial crisis, according to the state-run Xinhua News Agency. China’s 4 trillion yuan stimulus package unveiled in 2008 led to an unprecedented 17.5 trillion yuan of loans in the following two years, pushing up property prices and inflation while raising concerns over banks’ asset quality.

The banks’ average loan-to-deposit ratio stood at 64.5 percent at the end of first quarter, according to the watchdog’s data. The largest four lenders have been assigned limits below 75 percent, officials at the banks with knowledge of the matter said in March. Those banks have about 40 percent of yuan-denominated loans outstanding in the country, central bank data show.

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