The fast growth in the amount of money loaned by banks has prompted on-site inspections, beginning on Monday, of the country's four major State-owned commercial banks (SCBs) by China's banking regulator.

A senior official with the China Banking Regulatory Commission (CBRC) said the inspections will cover all major businesses of the "big four": the Industrial and Commercial Bank of China, the China Construction Bank, the Bank of China and the Agricultural Bank of China.

Emphasis will be put on the increase in bank loans, which rose rapidly in the first half of the year, including major reasons for the growth, changes of loan fields, potential risks and risk mitigation, he said.

By the end of August, the outstanding renminbi and foreign currency deposits of all financial institutions jumped year on year by 23.9 per cent to 16.31 trillion yuan (US$1.97 trillion), representing the highest growth since August in 1996.

And the growth of the outstanding broad money, or M2, was 21.6 per cent, 12.8 percentage points more than the sum of China's gross domestic product and consumer price index increases of 8.2 per cent and 0.6 per cent respectively, for the first six months, showing that the money supply was fairly fast.

Banking analysts noted that the sudden swelling of new bank loans was partly due to the SCBs' seeking listing on stock markets in the next few years by lowering the ratio of problem loans. An increase in the total amount of money on loan reduces the ratio of bad loans.

And new loans are expected to bring about immediate increases in interest income so as to improve the banks' performances.

Fan Gang, a leading economist in China, believed the new loans were "not necessarily bad ones," saying that under market conditions, both enterprises and banks are unwilling to touch loans in economic recession, while loans will surge in economic recovery or prosperity.

But he also warned: "Measures should be taken to avoid huge bad debts from occurring after economic slowdown comes."

Authorities with the Monetary Policy Department of the People's Bank of China, the central bank, warned against possible high inflation in tandem with fast money supply.

The on-site inspections of the four SCBs are partly aimed at "cooling down" a few hot industries such as real estate, while standardizing the methods of commercial banks, experts note.

The CBRC has vowed to closely monitor the banks' fast-growing business fields, including loans to the real estate and auto industries.

The CBRC said the inspections will promote the banks' internal controls and establish a more cautious, all-round and scientific system of risk management.

The ratio of non-performing loans of the four SCBs stood at 22.19 per cent at the end of June, down 4.02 percentage points from earlier this year.

Earlier, the central bank also said it will speed up efforts to lower the growth of money supply, especially that of new loans.

Xinhua

(China Daily 09/17/2003 page4)