Some Chinese banks have raised lending rates to as much as 1.45 times benchmark levels in response to government calls to rein in credit growth, the official China Securities Journal reported today.
One large commercial lender has told branches to charge between 1.1 and 1.45 times the rate, depending on which industries borrowers are in, the newspaper said, citing an unidentified official from the bank. The key one-year borrowing cost is 5.81 percent. The report didn’t name the lender.
The surge in lending typical of the start of each year may be hampering government efforts to rein in liquidity, cool inflation and prevent asset bubbles. This month’s loans reached 1.2 trillion yuan ($182 billion) by Jan. 24, according to a China Business News report today citing an unidentified person. That would compare with 481 billion yuan last month.
“The central bank is reining in liquidity more aggressively this year to prevent a surge in loan growth from fueling liquidity and inflation,” said Lu Ting, a Hong Kong- based economist at Bank of America-Merrill Lynch. Acting now may avoid the need for “aggressive tightening later in the year,” Lu said.
The China Securities Journal report didn’t specify the duration of the loans that the increased rates apply to.
ICBC, Bank of China
At Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, Beijing-based press officer Xie Taifeng said he’s not aware of any increase in rates.
“The process of setting the lending rate is market based, our headquarters doesn’t give specific instructions to branches on that,” Xie said.
No comment was immediately available from Bank of China Ltd. or China Construction Bank Corp.
Higher lending costs may encourage some companies to sell bonds rather than borrow from banks, said Lu Zhengwei, a Shanghai-based economist at Industrial Bank Co. He also said that a “liquidity shortage” may persist for the coming month.
China’s benchmark money-market rate jumped to the highest level since October 2007. The seven-day repurchase rate, which measures lending costs between banks, advanced 17 basis points to 7.82 percent, the highest level since Oct. 26, 2007, according to a daily fixing published at 11 a.m. by the National Interbank Funding Center. A basis point is 0.01 percentage point.
‘Abnormal’ Loan Growth
Officials raised interest rates twice in the fourth quarter and have also ratcheted up banks’ reserve requirements. Premier Wen Jiabao has pledged to prevent “abnormal” loan growth.
The China Securities Journal also reported that the unidentified large commercial lender had increased rates for property loans and scrapped or partly removed special rates for preferred clients.
The central bank has told banks not to lend more than 12 percent of their annual loan target in January, the newspaper said, citing another unidentified bank official. Some banks’ lending may have exceeded monthly quotas within the first two weeks of the year, the official said.
Lending totaled 7.95 trillion yuan last year, breaching a government target of 7.5 trillion yuan. Inflation has topped 4 percent for each of the past three months and may peak at 6 percent this month, according to a Daiwa Capital Markets.
The central bank caps the interest that banks can pay on deposits and sets a floor on borrowing costs of 90 percent of the benchmark one-year rate.
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