Cloudy with a Chance of Torrential Credit

Radical Lending

In the first week of 2009, lending in China's banking industry hit a new record at 600 billion yuan of new credit.

On January 11, Monday of the second week of the year, the CBRC convened banking officials to persuade them to adopt a "balanced lending" approach.

The following day, the central bank unexpectedly announced that it would raise the deposit reserve ratio for major banking institutions by 0.5 percent to 16 percent.

But data through January 15 shows that the Chinese banking industry disregarded warnings and policy signals from monetary and regulatory authorities, issuing another 500 billion yuan in loans that week. "Some banks lent even more furiously than in the first week," a source close to the central bank said. "Some banks issued a half year's credit in two weeks."

A banking official at a large bank said that the fierce level of lending was stunning, "If it isn't controlled, lending this January will exceed the 1.62 trillion yuan lent in January last year."

Central bank data shows that as of January 15, 2010, Bank of China (BOC) led the industry with 167.2 billion yuan of new loans for the year. The Industrial and Commercial Bank of China (ICBC) followed with 164 billion yuan, and the Agricultural Bank of China (ABC) came in third with 107 billion yuan. The China Construction Bank (CCB) was relatively steady at 62 billion yuan, and the Bank of Communications came in last with 28.7 billion yuan.

Joint stock banks could not keep up with the big banks in large projects in the first half of 2009. When lending from large banks began to slow in the second half of the year, "They had just decided to make their move, but were told to stop. They were only given leftovers to eat," a regulatory authority source said. Joint-stock banks don't want to miss another opportunity. Among them, China Everbright Bank (CEB), which had refinanced only half a year before, was the most aggressive, with new lending exceeding 97.3 billion yuan. CITIC Bank followed with 80.2 billion yuan, while Huaxia Bank lent 51.7 billion yuan.

In terms of volume, ICBC, which was not a radical lender in 2009, has been the pacesetter in early 2010. An industry insider said that ICBC had been careless and had a late start. Generally, banks begin to control the scale and pace of lending mid-month. High-level executives at China's state-owned banks were rotated at the beginning of this year. Niu Ximing, ICBC vice president in charge of lending was transferred to president of the Bank of Communications.

BOC, on the other hand, had set a strategy of expanding its yuan loan business for early 2009 and thus made a market share push, leading the industry in new loans in 2009. Continued lending and refinancing considerations in the beginning of 2010 is an extension of this strategy.

Industry analysis shows that if new loans continue at this speed, new lending in the first quarter will reach 5 trillion yuan, exceeding the 4.58 trillion yuan lent in the same period of 2009.