Banking

China banks ratchet up lending rates to ration credit

(Agencies)
Updated: 2011-01-26 09:19

BEIJING - Some Chinese banks have drastically raised lending interest rates or halted loan approval altogether to comply with government orders to rein in the pace of credit growth,?media reported on Wednesday.

Instructions have come down from head offices to some bank branches that they cannot exceed credit quotas for this month, China Securities Journal reported, with regulators keeping a closer eye than normal on lending activity as part of their campaign against inflation.

Although consumer price inflation dipped in December, many analysts expect it to rebound this month to its fastest in more than two years and say that excessive lending by banks would compound the problem.

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"To ensure that loan issuance does not overshoot the quota, the head office has now sent out an order that all branches raise lending rates," the newspaper paraphrased an unnamed official at a large State-owned bank as saying.

For less-favored industries, such as heavy polluters or energy guzzlers, some banks are setting lending rates 45 percent higher than the benchmark, which is now 5.81 percent for one-year loans, the newspaper said.

For ordinary industries, lending rates are about 30 percent higher than the benchmark, though top clients can still access loans at a 5 percent discount to the benchmark rate, it added.

The newspaper also cited a separate bank official as saying that overall lending in January cannot exceed 12 percent of the full-year target, which is said to be about 7.5 trillion yuan ($1.1 trillion).

With loans in the first two weeks of the month rumored to be more than 1 trillion yuan, already surpassing the 12 percent limit, banks are becoming very cautious and refusing to extend loans to certain projects, the report added.