China regulators tell banks to ramp up lending – sources

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SHANGHAI/BEIJING — China’s central bank has stepped up pressure on lenders with new instructions to grow loans, six bankers with knowledge of the matter said, as the world’s second-biggest economy faces an economic downturn and a plunge in borrowers’ confidence.

The informal message, issued via phone calls over recent months to commercial, rural and even foreign banks, was to lend more money to productive businesses and put less of it in financial investments, the banking sources said.

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The calls, which the sources said came from the People’s Bank of China (PBOC) and in one case the China Banking and Insurance Regulatory Commission (CBIRC), are the latest in a series of official efforts to encourage money out of a financial system awash with cash and into lending that can drive real growth.

China’s economy narrowly avoided contracting last quarter due to widespread COVID-19 lockdowns and economists say its nascent recovery is in danger of fizzling out amid fresh virus flare-ups and a deepening crisis in the real estate market.

New bank lending in July fell to less than a quarter of June’s amount and China has cut three key lending rates this month in a bid to turn credit demand around.

The latest so-called “window guidance” is wider in scope than the push to encourage state-backed lenders to support the embattled property sector, reported this week by Reuters.

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“The purpose is to encourage banks to extend more loans and put a floor under the real economy,” said one of the sources.

“If you do not lend, you can’t invest.”

The PBOC said it had no comment on the matter. The CBIRC, China’s banking regulator, didn’t immediately respond to requests for comment.

Three of the banking sources said their banks were given a new requirement via phone calls to ensure loan growth outpaced financial investments. Another, at a rural bank, said their bank was encouraged to lend to small businesses which have borne the brunt of slow spending and tumbling confidence.

Others were given higher loan quotas by the banking regulator and the PBOC, or told to post year-on-year loan growth in every month after May, the people said.

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Such informal and verbal directives are not new. But this time round involves a wider range and larger number of banks, according to the sources.

The value of total social financing, a broad measure of credit and liquidity in the economy, hit a six-year low in July. In the same month, outstanding domestic loans by banks and other depository financial institutions grew 11% from a year ago, which was dwarfed by a 17% rise in bond portfolio investments, the latest central bank data showed.

Meanwhile, outstanding investments in paper financing jumped 40% during the period, as banks plowed money into relatively safe, short-term commercial paper, instead of making real loans.

This is despite other official efforts to encourage lending, including lowering interest rates and the central bank’s urging of state lenders to lead the way in financing the ailing property sector.

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Reuters reported on Thursday that some state-backed financial institutions are resisting that call – wary of potential losses – and one of the banking sources said the lack of demand made meeting the new targets very difficult.

Interest rates for commercial paper, a widely used barometer for bank credit conditions, kept falling in August, also a sign money is still flowing to financial products rather than loans.

It is perhaps an illustration of “the conflict between current weak credit demand and the appraisal pressure banks face,” said Ming Ming, chief economist at CITIC Securities. (Reporting by Shanghai and Beijing Newsroom; Editing by Kim Coghill)



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