Banking regulator says government new loans not limited to 5 trillion yuan

Special Report: Boao Forum For Asia
2009

BOAO, Hainan, April 18 (Xinhua) -- China's banking regulator said Saturday the government's target of new loans this year is not limited to 5 trillion yuan (735.3 billion U.S. dollars), and all funds should help keep the sustainable and rapid development of the economy.

Liu Mingkang, chairman of the China Banking Regulatory Commission, made the remarks at a panel discussion of the Boao Forum for Asia (BFA).

The government said earlier it expected Chinese banks to extend about 5 trillion yuan of new loans this year. However, new loans in the first quarter of this year already exceeded 93 percent of the total figure.

In March alone, new loans issued in Chinese currency reached 1.89 trillion yuan, the third straight month that new loans exceeded 1 trillion yuan and an increase of 1.61 trillion yuan from last March, central bank data show.

As the government adopted a moderately easy monetary policy to encourage more credit supply as a way to spur economic growth since late last year, worries surged about excessive output capacity and more bad loans.

The amount of new loans boomed in the first three months because a considerable number of projects passed evaluation procedures and were put into operation, said Liu.

The new loans went mainly to infrastructure construction and would not result in excessive industrial output capacity, he said.

Funds also went to projects that improve people's livelihood, and business-related sectors such as inventory and logistics, he said.

Agriculture-related loans saw a major increase of 28.3 percent,1.3 percentage points more than the average increase rate. In this sense, there was an evidence of more developed finance services in rural areas, said Liu.

Liu admitted that the risk of bad loans would increase, but said the banking system could handle it. "Risk increases whenever credit soars at a pace of more than 20 percent," said Liu. The first quarter saw a 27-percent increase in loans.

However, he was not afraid of a rebound in non-performing loans(NPL) in the banking system, for the industry has established a sound mechanism. The provision for the first quarter had exceeded 900 billion yuan.

Both the amount of NPL and its ratio in the total outstanding loans would continue to decline this year, and China's banking system would remain sound and healthy, Liu said.

The NPL ratio of lenders, including foreign banks in China, was2.04 percent at the end of March, down 0.38 percentage points from the beginning of 2009, said the China Banking Regulatory Commission (CBRC) in a statement earlier this week.

In the meantime, Liu asked domestic banks to be prudent in expanding business overseas.