Sep 06, 2018 08:23 PM

Banks Reluctant to Obey Calls for More Credit

Industrial and Commercial Bank of China originally planned to reduce its new lending in 2018 to 900 billion yuan, however it now plans to increase it to 1 trillion yuan. Photo: VCG
Industrial and Commercial Bank of China originally planned to reduce its new lending in 2018 to 900 billion yuan, however it now plans to increase it to 1 trillion yuan. Photo: VCG

* Since the banking watchdog told banks in August to offer support “for the real economy,” China’s largest state-owned banks have moderately boosted their lending plans while other lenders have not budged

* Bankers worry that turning on the lending taps will increase their numbers of nonperforming loans, with one telling Caixin that they “really don’t dare to do this”

(Beijing) — Many of China’s commercial banks have indicated they aren’t planning to boost lending for the remainder of the year, despite government efforts to encourage them to provide more support to the economy amid slowing growth.

First-half earnings reports and presentations show that in general, the “big four” state-owned commercial banks are intending to lend slightly more than targeted at the beginning of the year, while small and midsize lenders are mostly leaving their original plans unchanged.

China’s policymakers have spent the last two years urging banks to rein in lending and step up risk controls as part of a campaign to slow the expansion of the country's debt. But concerns that the curbs are exacerbating a drop in investment growth that’s pulling down economic expansion have prompted the government to relax its stance. The China Banking and Insurance Regulatory Commission has repeatedly called on banks to expand credit for small and private business over the last two months, and in mid-August told them bluntly to “increase financing support for the real economy.”

But industry analysts and bank executives say it’s not so easy to turn the lending taps back on. “Banks’ risk tolerance has clearly diminished,” a senior industry analyst told Caixin. A middle manager at a large state-owned commercial bank said lenders were concerned that boosting credit could saddle them with more nonperforming loans (NPLs). They feared this could lead to a repeat of the bad debt boom triggered by the government's loosening of credit as part of a 4 trillion yuan ($585 billion) stimulus package introduced in 2008 to cushion the economy from the global financial crisis.

“After the stimulus, we started to see NPLs appear in 2011 and 2012 and it was only at the end of 2016 and the start of 2017 that we began to climb out of that hole,” the banker said. “So now, when the NPL situation has only just improved, we’re supposed to significantly increase lending? We really don’t dare to do this,” he said.

Weak demand

State-owned Industrial and Commercial Bank of China Ltd., the country’s biggest commercial lender, originally planned to reduce its new lending in 2018 to 900 billion yuan from 930 billion yuan last year, company statements show. However, it now plans to increase this year’s figure to 1 trillion yuan, a senior manager said on Aug. 31 at an earnings briefing. But he noted that while demand for loans was stable in general, he was not very optimistic about the outlook.

Liu Liange, president of Bank of China Ltd., another of the “big four” state-owned lenders, said that the bank will “moderately” increase lending over the rest of the year. Wang Zuji, president of China Construction Bank Corp., said his bank would increase credit “as much as possible.” But neither of the executives, who spoke at their respective earnings news conferences in late August, gave specific figures.

Joint-stock banks, which expanded lending far more aggressively than the big state-owned lenders over the past few years, are even more reluctant given the constraints their growth has placed on their balance sheets and the need to comply with regulatory requirements on capital adequacy.

China Merchants Bank Co. Ltd., one of the largest joint-stock commercial banks, is not intending to increase lending beyond its original plans, a senior manager said at a meeting with investors on Aug. 27. He said the decision was taken after considering a range of factors including an appropriate pace of expansion, regulatory guidelines and the bank’s own capital situation.

The government has taken a series of steps this year to increase the supply of credit, including three targeted cuts in the reserve requirement ratio for some lenders. In late July, the People’s Bank of China (PBOC), the central bank, injected 502 billion yuan of cash into the banking system through loans to commercial banks via its one-year medium-term lending facility in a bid to spur lending to small companies and purchases of corporate bonds.

Although the PBOC has relaxed rules in its Macro-Prudential Assessment framework which monitors banks’ financial strength and risks, and the banking regulator has eased up on other controls, lenders are still constrained from boosting credit by a series of factors, analysts at Citic Securities said in a Sept. 3 report. These include slow deposit growth, which limits their ability to hand out new loans, concerns about the potential for higher NPLs and insufficient capital buffers to meet regulatory requirements, they said.

Contact reporter Ke Baili (

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