China bank loan rebound does not signal end to credit tightening

Feb. 15, 2008 (Thomson Financial delivered by Newstex) — BEIJING (XFN-ASIA) - The rebound in China’s bank lending growth in January reflects banks’ desire to frontload quarterly lending quotas and does not signal a change in the central bank’s credit tightening policy, Lehman Brothers (NYSE:LEH) said.

The People’s Bank of China (PBOC) yesterday said bank lending growth rebounded to 16.7 pct in January from 16.1 pct in December, while M2 money supply growth also picked up to 18.9 pct from 16.7 pct in December. In a note, economist Sun Mingchun said the rebound showed that banks frontloaded first quarter lending quotas to maximize interest income. It should not be viewed as a shift in PBOC policy, he said. ‘We do not think the rebound suggests a change in the PBOC’s credit tightening.

The PBOC controls lending growth on a quarterly basis, not on a monthly basis, and banks are allowed to frontload their lending quotas,’ Sun said. ‘Banks had a strong incentive to lend out early in the quarter to maximize interest income,’ he said. Sun added that credit tightening introduced last November and the timing of the Chinese New Year holidays also encouraged banks to lend in January.

‘The sudden credit tightening introduced in November last year…created lots of unsatisfied borrowing demand that banks needed to address in January when new lending quotas were available,’ Sun said. ‘The week-long Chinese New Year holidays in early February, during which little lending business can be conducted, also prompted banks to frontload lending in January,’ he said.