Quotas limiting lending may be scrapped

Officials may instead rely on adjusting banks' reserve requirements to restrain credit growth

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Bloomberg
Bloomberg
Bloomberg

Hong Kong: Chinese officials may be moving toward scrapping the nation's lending quota and instead relying on adjusting banks' reserve requirements to limit credit growth, Citigroup and Mizuho Securities Asia said.

Shen Jianguang, a Hong Kong economist for Mizuho, commented in an e-mailed note on a China Securities Journal report that the central bank may make monthly adjustments to requirements for individual lenders.

"Clearly the central bank is trying again to scrap the loan-quota system," said Shen, who has worked for the European Central Bank and the International Monetary Fund. The expanded use of reserve ratios "could be an effective measure to curb bank lending, but the implementation will be difficult".

Lending target

Chinese banks' lending is likely to have topped the government's 2010 target maximum of 7.5 trillion yuan (Dh4 trillion) after banks extended 99 per cent of that amount in the first 11 months of last year.

The government is seeking to counter the fastest inflation in more than two years and limit asset bubbles in real estate.

The central bank wants to limit the role of quotas, which lenders can circumvent via wealth management and other off-balance-sheet products, according to Beijing's Citigroup economist Ken Peng who spoke in an interview yesterday.

Officials may be able to more effectively rein in the money supply using the reserve requirements, he said.

Last month, two people briefed on the matter said the government was considering a 2011 loan target of at least seven trillion yuan.

The Shanghai Securities News reported on January 6 that China may not set a "clear" target for lending this year, citing an unidentified person.

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