China cuts 2011 lending target by 10 percent

Wednesday, 19 January 2011 00:01 - - {{hitsCtrl.values.hits}}

SHANGHAI/BEIJING (Reuters) - China’s central bank has cut its 2011 lending target for banks by 10 percent from last year, the official Securities Journal reported on Tuesday, citing unidentified banking sources.

Although the Chinese central bank has yet to announce an annual lending target for the year, it has reduced the target by as much as 10 percent from the value of loans handed out last year, the newspaper said.

That means banks can lend between 7.2 trillion and 7.5 trillion yuan (about $1.1 trillion) this year, the newspaper said.

There are widespread expectations that China will not publicly announce a lending target for 2011 after these targets were ignored by banks and shown to be inadequate.

But even without an official target, many analysts believe the central bank will still restrict bank lending from behind the scenes as it tries to contain growing inflationary pressures.

It is customary, for instance, for China’s banks to seek approval from the central bank for their individual annual loan targets at the start of each year.

NEW YEAR LENDING BINGE

Quoting an unidentified executive from a Chinese state bank, the newspaper said many Chinese had asked the People’s Bank of China to keep the 2011 lending target on par with that in 2010.

“But the central bank has basically cut every bank’s proposed loan size by 10 percent,” the bank official was quoted as saying.

Banks lent 7.95 trillion yuan ($1.2 trillion) in 2010, overshooting Beijing’s 7.5 trillion yuan target and highlighting the need for more decisive policy tightening.

The newspaper said the central bank has also asked banks not to lend more than 12 percent of their full-year targets in January, the newspaper said.

Chinese banks continued their lending frenzy in the beginning of the year, doling out 500 billion yuan (47.6 billion pounds) in new loans in the first week of January alone.

Annual inflation raced to a 28-month high of 5.1 percent in November but may cool slightly in December as food prices stabilised, a Reuters poll of economists showed. Data on December inflation and fourth-quarter economic growth will be released on Thursday.

For January, total lending of 900 billion yuan is considered a reasonable target but anything beyond 1.2 trillion yuan would be considered intolerable by the regulator, the Securities Journal said.

The January target has led to a lending squeeze at some commercial banks, it said.

Chinese banks, led by “Big Four” lenders Industrial and Commercial Bank of China <601398.SS><1398.HK>, Bank of China <3988.HK> <601988.SS>, Agricultural Bank of China <601288.SS> <1288.HK> and China Construction Bank <0939.HK> <601939.SS>, may have already lent close to 800 billion yuan in the first two weeks of January, the newspaper said.

The regulator may penalise banks that exceed their January lending ceilings by setting specific reserve ratios for these banks or ask them to buy more central bank notes.