FocusChina may need to tighten credit soon - analysts

13 April 2009 09:21  [Source: ICIS news]

By Judith Wang and Dolly Wu

SHANGHAI (ICIS news)--China will continue its loose monetary policy stance but “strictly control” credit to some sectors, its central bank said over the weekend, though analysts forecast it will have to curb lending growth soon to prevent credit risk and inflationary pressure.

“China will maintain continuity and stability in its monetary policy,” the People’s Bank of China said in a statement after a quarterly monetary policy meeting on Sunday.

The statement posted on its website said the bank would ensure that monetary supply is sufficient to meet the needs of economic development and strengthens the credit support to small and medium companies.

“Meanwhile, China will strictly control the loans for high-energy consuming and high pollution companies,” it added.

“I think the lending growth will slow down in the following months as excessive loans will cause inflation,” said Li Hongrong, an analyst from Shenzhen-based Ping An Securities.

Local news portal reported last week that China Banking Regulatory Commission (CBRC) may issue new rules to curb lending after the massive loan growth seen in the past four months.

“We think such an action is perfectly sensible in the current environment,” said Ma Jun, Chief Economist from Deutsche Bank Hong Kong.

“We believe that excessive loan growth will lead to inflationary pressure in the medium term, exacerbate credit risk, and can potentially contribute to higher volatility in the economy,” Ma added.

Chinese banks issued a total of yuan CNY4.58 trillion ($670bn) in new loans in the first quarter, CNY3.25 trillion more than issued in the same period of last year, the central bank said on Saturday.

“Q1 new lending was equivalent to the total new lending in the first 11 months of last year, and was three times the level during the same period of last year,” Ma said.

“We expect banks to exercise self-restraints in the coming weeks; otherwise the regulators will likely be prompt to take actions to slow loan growth,” he added.

In March, banks issued a total of CNY1.89 trillion in new loans, CNY1.61 trillion more than that of last year.

Analyst Li Hongrong said the new loan increase showed the government’s four trillion economic stimulus plan had started to take effect.

“The new loans will likely to continue to be at high levels in the coming months as many companies still need a lot of money to survive in the economic crisis, but their growth rate will be slow,” Li said.

“If the government unveils the second stimulus plan in the future, I predict it will focus on how to drive the domestic consumption,” she added.

($1 = CNY6.83)

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