Bank lending has grown so fast that the loan-deposit ratio for
some Chinese shareholding commercial banks is well past the warning
level, the central bank has warned.
For commercial banks, the higher the ratio – the amount of a
bank's loans divided by the amount of deposits at any given time –
the more the bank is relying on borrowed funds.
Article 39 of the Commercial Bank Law of the People's Republic
of China stipulates that the ratio of outstanding loans to
outstanding deposits in Chinese commercial banks may not exceed 75
percent.
But statistics from the
(PBOC) suggest the loan-deposit ratio in some branches of major
shareholding commercial banks has approached or even topped 100
percent.
By the end of September, the loan-deposit ratio in the Ningbo
Branch of Industrial Bank had reached 98.1 percent. Similarly, the
figures for the Ningbo branches of Mingsheng Bank and China
Merchants Bank had jumped to 128.35 percent and 100.81 percent
respectively.
The loan-deposit ratio for all local banks in Ningbo, one of the
booming cities in the east China province of Zhejiang, averaged 87
percent at the end of September, according to data from the Bank
Loan Registration System of the PBOC.
Meanwhile, Guangzhou-based 21st Century Business Herald said the
loan-deposit ratio for China Everbright Bank had reached 77.6
percent as of September 20, citing statistics from the headquarters
of the bank.
The alarming figure has prompted the bank, one of the country's
leading shareholding commercial banks, to issue an urgent notice,
asking all branches to tighten lending policies.
"Given a growing loan-deposit ratio and decreasing capital
adequacy ratio, the loans in our bank have seen too fast a rise to
impose some pressure over our capital liquidity," the notice
said.
Branches of the bank were, therefore, urged to attract more
deposits and be more cautious in granting new loans.
In fact, the soaring loan-deposit ratio has already caused
capital shortage in some shareholding commercial banks, which is
partly reflected in the active inter-bank lending market.
In order to ease their tight funds supply, some capital-starved
small- and medium-sized banks have been forced to sell their loan
assets to their counterparts.
The emerging problems with these shareholding commercial banks
are typical of the overall picture of excess bank lending, which
economic researchers said carry high financial risks.
At the end of September, outstanding lending by all financial
institutions jumped by 23.7 percent year on year to 16.65 trillion
yuan (US$2.01 trillion), 5.3 percentage points higher than last
year.
In the same period, new loans by all financial institutions
totaled up to 2.7 trillion yuan (US$326.4 billion), 745.9 billion
yuan (US$90.19 billion) more than all they lent for the whole of
last year.
Yi Gang, director of the Monetary Policy Department of the PBOC,
admitted that the growth in credit was quick despite the central
bank's precautionary measures.
He cautioned that excess lending, if not effectively checked,
may lead to serious problems to undermine the entire Chinese
economy development:
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A fast rise in money supply may push up the consumer price index,
triggering runaway inflation.
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Excessive loans may result in investment duplication and aggravate
oversupply in some red-hot industries, which in turn will fuel
price wars, causing deflation.
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Capital bubbles may emerge in the property and stock market to
breed the so-called bubble economy, the bursting of which may drag
the Chinese economy into a long-term recession.
(China Daily November 9, 2003)