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.

IMF says financial losses may swell to $4 trln

Special Report:Global Financial Crisis

WASHINGTON, April 21 (Xinhua) -- The International Monetary Fund (IMF) said Tuesday that losses stemming from the U.S. mortgage crisis may approach 4 trillion dollars, saying the global financial system "remains under severe stress."

The IMF said in January that it expected the deterioration in U.S.-originated assets to reach 2.2 trillion dollars by the end of next year.

But the Washington-based lender said in a semi-annual report, the Global Financial Stability Report (GFSR), that its best estimate of write-down on U.S.-originated assets to be suffered by all holders will be 2.7 trillion dollars, "largely as a result of the worsening base-case scenario for economic growth."

"In this GFSR, estimates for write-downs have been extended to include other mature market-originated assets and, while the information underpinning these scenarios is more uncertain, such estimates suggest write-downs could reach a total of around 4 trillion dollars, about two-thirds of which would be incurred by banks," said the IMF.

The IMF report followed a global plunge in stocks Monday, when U.S. stocks slid more than 3 percent after a six-week winning streak, which was the longest for the SP 500 since 2007 and led to the biggest gain over the period for the Dow Jones since 1938.

The report warned the global financial system remains under severe stress as the crisis broadens to include households, corporations, and the banking sectors in both advanced and emerging market countries.

"Shrinking economic activity has put further pressure on banks' balance sheets as asset values continue to degrade, threatening their capital adequacy and further discouraging fresh lending," said the report.

"Thus, credit growth is slowing, and even turning negative, adding even more downward pressure on economic activity," it said." Substantial private sector adjustment and public support packages are already being implemented and are contributing to some early signs of stabilization."

The report called for decisive actions to restore confidence in the global financial system.

"Further decisive and effective policy actions and international coordination are needed to sustain this improvement, to restore public confidence in financial institutions, and to normalize conditions in markets," said the report.

The key challenge is to break the downward spiral between the financial system and the global economy, said the IMF, noting that promising efforts are already under way for the redesign of the global financial system "that should provide a more stable and resilient platform for sustained economic growth."