By staff reporters Wen Xiu and Fang Huilei
(Caijing.com.cn) China Construction Bank (SH 601939; HK.0939) will limit lending in the second half in response to regulators' concerns that soaring first-half new loans could fuel asset-price bubbles and a surge in bad loans, a source close to the bank told Caijing recently.
CCB, the world's second-largest bank by market value, will cap new 2009 lending at 900 billion yuan, the source said. The bank extended 709 billion yuan in new loans in the first half, meaning it will make 191 billion yuan in new loans in the second half.
CCB set the full-year lending target at a recent meeting of branch chiefs.
The decision to rein in lending follows a similar move from the Industrial and Commercial Bank of China (SH.601398; HK.1398). ICBC, the world's largest commercial bank by market value, has capped its 2009 lending target at 1 trillion yuan. It granted 825.5 billion yuan in new loans in the first half.
CCB was the biggest lender in the first quarter with 520 billion yuan of new loans. The pace slowed considerably in the second quarter, with loans of 189 billion yuan.
"CCB was already restraining lending in the second quarter. We suffered greatly because of the internal lending restrictions. Some branches had to give up projects they had been involved with for many years," a CCB official said.
CCB's new full-year lending target still requires the bank board's approval, the source added.
CCB ordered branches to limit lending at month- and quarter-end and to strengthen post-lending monitoring, the source said.
Banks extended 7.4 trillion yuan in new loans in the first half, more than three times the previous year's level.
CCB's move comes after regulators' warnings earlier in the week that banks must ensure new loans go to the real economy, not into speculative property and stock market investments, where, officials say, asset-price bubbles are forming. The Shanghai Composite Index rose 62.5 percent in the first half.
For a single "fixed-asset loan" greater than 5 million yuan or exceeding 5 percent of the total investment for a project, banks must give a portion of the loan directly to the final users, who might actually be building the project, instead of giving the loan in full to the borrower, the central bank said July 27. The rule means loans will be backed by real demand.
Despite the new rules, in the current easy credit environment, borrowers have significant power when applying for loans, said a bank official who declined to be identified.
Getting borrowers to accept the new loan conditions will be the biggest challenge to effective implementation of the rules, the official added.
1 yuan = 14 US cents
Fulll article in Chinese: http://www.caijing.com.cn/2009-07-28/110215310.html