Chinese regulators ask banks to increase lending – sources

The headquarters of the People’s Bank of China (PBOC), the central bank, is pictured in Beijing, China September 28, 2018. REUTERS/Jason Lee

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SHANGHAI/BEIJING, Aug 26 (Reuters) – China’s central bank has stepped up pressure on lenders with new instructions to increase lending, six bankers with knowledge of the matter said, as the world’s second-largest economy faces an economic slowdown and a drop in borrower confidence.

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

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 efforts officials aimed at encouraging money to flow out of a flooded financial system. with cash and in loans that can stimulate real growth.

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China’s economy narrowly avoided contracting in the last quarter due to widespread COVID-19 lockdowns and economists say its nascent recovery risks running out of steam amid new virus outbreaks and a looming crisis. is worsening in the real estate market. Read more

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

The latest so-called “window guidance” is broader in scope than pressure to encourage state-backed lenders to support the struggling property sector, Reuters reported this week. Read more

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

“If you don’t lend, you can’t invest.”

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

Three of the banking sources said their banks had received a new requirement over the phone to ensure loan growth exceeded financial investment. Another, at a rural bank, said his bank was encouraged to lend to small businesses that have felt the brunt of slow spending and falling confidence.

Others received higher loan quotas from the banking regulator and the PBOC, or were ordered to show year-over-year loan growth every month after May, said the people.

These informal, verbal directives are not new. But this time around, it involves a wider range and more banks, the sources say.

The value of total social finance (CNSFLM=ECI), a broad measure of credit and liquidity in the economy, hit a six-year low in July. In the same month, outstanding domestic loans from banks and other deposit-taking financial institutions increased by 11% compared to a year ago, which was eclipsed by a 17% increase in investments in the bond portfolio. , according to the latest data from the central bank.

Meanwhile, the stock of paper finance investments jumped 40% over the period, with banks investing money in relatively safe, short-term commercial paper, instead of making real loans.

This is despite other official efforts to encourage lending, including lower interest rates and the central bank’s insistence on public lenders to lead the way in financing the struggling real estate sector. Read more

Reuters reported on Thursday that some state-backed financial institutions were resisting the call – fearing potential losses – and one of the banking sources said the lack of demand was making it very difficult to meet the new targets.

Commercial paper interest rates, a widely used barometer of bank lending conditions, continued to fall in August, also a sign that money continues to flow into financial products rather than loans.

This may be an illustration of the “conflict between the current weak credit demand and valuation pressure on banks,” said Ming Ming, chief economist at CITIC Securities.

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Shanghai and Beijing newsroom reporting; Editing by Kim Coghill

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