Caixin
ECONOMY

Lending Tightens in China

By Wu Hongyuran, Han Yi and Fran Wang

Several of China’s largest state-backed banks used up their full-year quota to lend in the first three quarters as government efforts to deleverage the financial sector deepened.

Lenders don’t expect the credit situation to ease next year.

Industrial and Commercial Bank of China (ICBC) and the Agricultural Bank of China both ran out of their loan quotas for this year of 850 billion yuan ($128 billion) and 800 billion yuan, respectively, in the first nine months. They both have had to ask the central bank to lift their caps and are expecting new loans issued by each of them to hit around 900 billion yuan this year. China Construction Bank and Bank of China are facing similar problems, according to sources close to the senior management of the banks.

Looking ahead, banks widely expect their loan quota, decided by the People’s Bank of China, to stay similar to this year’s in 2018 if the central bank doesn’t change its stable and neutral monetary policy stance.

That would mean new loans to be handed out by each of the large banks will be around one trillion yuan next year, while smaller banks will still have a tight time.

Presidents of several city commercial banks told Caixin that they believe their lending ability will remain restricted in 2018 due to the Macro Prudential Assessment, a points-based testing mechanism adopted by the central bank at the start of 2016 to gauge risks in bank-credit exposure. Another concern they cited is regulators’ window guidance on how much they can lend and what projects they can grant loans to, such as the limits on their lending to the real estate sector and local government financing vehicles.

The early depleting of banks’ lending quota was partly a result of the government’s move to strengthen oversight of risky operations in the financial sector, especially those related to shadow banking and wealth management products. Tightened regulation closed loopholes banks could exploit for off-balance sheet lending and therefore forced them to focus on more standard loan issuance. 

One example of the deleveraging campaign taking a toll on shadow banking: The discounting bills of exchange business at the ICBC fell by over 300 billion yuan from a year ago in the January-September period and is expected to shrink further in the last quarter of the year, an executive with the bank told Caixin.

New loans extended by Chinese banks totaled 11.16 trillion yuan in the first nine months of this year — 998 billion yuan more than the same period in 2016, central bank figures showed.

A veteran banking analyst pointed out that medium- to long-term corporate loans increased significantly this year, with lending to the manufacturing sector in the January-March period alone exceeding the amount recorded in the full year of 2016. 

Contact reporter Fran Wang (fangwang@caixin.com)


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