BEIJING • China's central bank has ordered lenders to strictly control new loans in the first quarter of the year, people familiar with the matter said, in another move to curb excess leverage in the financial system.
The guidance from the People's Bank of China (PBOC) puts a particular emphasis on mortgage lending, the people said, as the authorities grapple to contain runaway property prices. While the PBOC regularly seeks to guide banks' credit decisions, this time it may also make errant lenders pay more for deposit insurance, one of the people said.
Policymakers are trying to strike a balance between avoiding excess credit that fuels asset bubbles and keeping enough funding in the financial system to meet the seasonal surge in demand for credit ahead of the start of the Chinese New Year holiday this week.
President Xi Jinping and his top economic deputies reaffirmed last month that they plan to prioritise the control of financial risks to prevent asset bubbles. "This is a continuation of the tightening trend we've seen since the second half of last year and extends from shadow banking to on-balance sheet loans," said Sanford C. Bernstein analyst Wei Hou.
The PBOC may punish banks which do not comply with the new lending rules by lowering interest rates on reserves, according to sources. The central bank may also punish errant lenders by making them pay more for deposit insurance, one of them said.
The new instructions included a request for banks to keep any rise in new mortgage lending in the first quarter below the increase seen in the fourth quarter of last year. The growth rate of total outstanding mortgages should not exceed the fourth-quarter rate.
Chinese banks gave a record 12.65 trillion yuan (S$2.6 trillion) of new loans last year, with many tending to front-load their lending in the first quarter of the year so they could record the interest income earlier.