China's central bank steps up drive to boost lending

Shanghai

CHINA'S central bank has started actively encouraging banks to boost lending, people familiar with the matter said, as it ratchets up efforts to bolster a cooling economy.

The message has come in the form of window guidance from the People's Bank of China, said the people, who asked not to be named. The central bank hasn't provided specific targets, but it indicated a willingness to be more flexible on banks' government-imposed lending caps, the people said.

While China has taken several steps to free up credit in recent weeks, the central bank's latest interactions with banks suggest official efforts have intensified. One executive at a large state-owned bank said the firm exceeded its year-to-date lending quota, judging that the PBOC would be less strict in enforcing the cap. A smaller bank focused on small-business lending had its quota raised by more than 50 per cent in August from the previous month, a person with knowledge of the matter said.

Less than two years after Xi Jinping's government began a campaign to curb risky lending practices and rein in China's record debt burden, regulators are tapping the brakes on their crackdown as the US$12 trillion economy slows and US President Donald Trump threatens to slap more tariffs on Chinese goods.

More flexible quotas would make it easier for banks to boost small-business lending from the weakest pace in three years and offset an unprecedented contraction in China's shadow-finance sector. Increased lending would also help improve sentiment in the country's equity and credit markets, which have slumped amid trade jitters and rising defaults.

Chinese authorities have already taken several other steps to ease financial conditions and bolster the economy, while stopping short of broad-based fiscal or monetary stimulus.

The moves have included three cuts to banks' reserve-ratio requirements this year, relaxed capital restrictions for some lenders, and new rules for the shadow-finance industry that proved less restrictive than many analysts had anticipated. A statement from China's top governing body on Tuesday emphasised the need to make economic policies more flexible, adding to signs that Mr Xi's government is increasingly focused on supporting growth.

In China, the central bank sets an undisclosed quota for overall credit growth and decides how much each bank can lend by looking at metrics including capital adequacy ratios, liquidity conditions and provisions for bad loans - part of its so-called macro prudential assessment framework.

Higher quotas, or relaxed enforcement of existing quotas, would allow some banks to take fuller advantage of recent policy tweaks that reduced their capital requirements. BLOOMBERG