Bank of China, Construction Bank Start Curbing Credit

Bank of China, Construction Bank Start Curbing Credit

Jan. 26 (Bloomberg) -- Chinese banks have begun restricting new loans, responding to a push by regulators to contain credit after a surge in lending in the first half of this month.

Bank of China Ltd. has stopped extending new corporate loans in the Shanghai area, except for clients who have repaid earlier borrowings, said a person familiar with the matter who declined to be identified. China Construction Bank Corp.’s branch in the city has been told to screen applications for personal loans and mortgages more carefully and to stop new lending once a monthly quota is met, another person said.

China’s benchmark stock index fell to a three-month low today on concern a government clampdown on lending will slow the world’s third-largest economy. Credit Suisse Group AG said in a note today that a countrywide lending halt that started Jan. 19 may trigger a “meaningful” decline in manufacturing.

“This round of quantitative tightening seems to be more serious than we thought after Beijing was shocked by the lending figures in the first two weeks of this year,” Credit Suisse economist Dong Tao wrote in the report. “We would not be surprised if banks imposed a monthly lending quota, as against a quarterly quota in 2008.”

The central bank has also moved to curb credit, ordering banks on Jan. 12 to raise the ratio of deposits they hold in reserve, limiting the amount of cash available for lending. The People’s Bank of China has also instructed lenders including China Citic Bank Corp. to boost their reserve ratios by an additional 0.5 percentage point, Reuters reported last week.

Lending Cap

Shares in Bank of China slipped 3.4 percent to close at HK$3.68 in Hong Kong today, the lowest since Aug. 19. Construction Bank fell 2.9 percent to HK$5.95, the lowest since Sept. 3.

Chinese banks advanced 1.45 trillion yuan ($212 billion) of loans in the first 19 days of this month, the 21st Century Business Herald reported today, without citing anyone. That’s equivalent to 19 percent of the CBRC’s full-year target.

The China Banking Regulatory Commission last week said lenders that failed to meet any of more than a dozen regulatory requirements have been told to limit lending. The watchdog said not all banks have been asked to rein in credit.

“Five major banks we have contacted today all suggested they received instruction from banking regulators last week to slow down new lending, but not stop new lending,” HSBC Holdings Plc economist Hongbin Qu said in a note today.

China will cap new credit at 7.5 trillion yuan this year, down from a record 9.59 trillion yuan last year, according to CBRC Chairman Liu Mingkang.

Capital Pressure

Lenders in the country are under pressure to raise money after last year’s credit surge weakened their capital and the industry regulator imposed tougher guidelines for financial buffers. Bank of China, the nation’s third-largest lender by market value, announced Jan. 22 that it will sell 40 billion yuan of convertible bonds and may raise additional capital by selling new shares.

Bank of China’s new lending in the first 20 days of January was “relatively large,” according to an e-mailed statement from the lender on Jan 20. The company said it will try to balance loans between months and quarters and that it needs to pay more attention to the structure of credits.

China Construction Bank’s Beijing-based spokesman Yu Baoyue wasn’t immediately available. A Bank of China spokesman declined to comment.

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