China sees an 8 trillion yen loan surge in 2009

New loans in China are expected to surge more than 57 per cent in 2009 in the wake of the government asking banks to lend more to boost growth,  according to the state media.

Official sources in China said banks will extend at least 8 trillion yuan in new loans this year, which will represent a 57.3 per cent rise over the 5.07 trillion yuan in loans extended last year.

Chinese banks have already lent 4.58 trillion yuan in the first quarter of this year in a bid to match the government's efforts to lift economic growth.

However, analysts say that there are ''uncertainties'' regarding the banks' ability of fend off risks even as they lend more aggressively than before.

The data do not point to any reason for alarm, however, as the non-performing loan ratio at the commercial banks stood at 2.04 per cent at the end of March which was down from the 2.4 per cent at the beginning of the year.

Analysts, however, point out that the negative effects of the current lending drive would be apparent only a year or two down the line.
 
They add that the bad loans figure would likely remain low in the first half of 2009 as it reflected older loans.

The government's efforts to create a globally competitive banking sector have been hampered by bad loans and earlier this decade authorities were forced to infuse huge amounts of funds into top lending institutions to enable them write off bad loans and get in shape up for overseas listing.

It has been reported, however, that some of the new loans may be going to uses other than those designated in the central government's stimulus programme. They either end up in bank deposits or are used to manipulate stocks in the capital market.

Analysts say that some companies can get new loans through bill financing at very low rates of interest and they can then make a profit simply by depositing the money back in their banks.

 Meanwhile, reports said the China Banking Regulatory Commission (CBRC) is making new rules on loan use in an attempt to get a better hold on where the loans end up.

 Analysts estimate that 20 to 30 per cent of new loans in the form of bill financing were turned into bank deposits or stock market funds instead of for boosting the economy.

Some loans were also being issued to make banks' lending records look good they say. There are also reports of arrangements between banks and select trusted clients to simply raise the former's monthly performance claim.

Meanwhile, Lin Mingkang, the CBRC chairman has called on banks to closely monitor the mounting risk due to the recent lending surge. He said that a rise in bad loans might follow the lending surge.