Investment

Banks permitted to sell each other loans

By Luo Jun and Eva Woo (China Daily)
Updated: 2010-09-27 07:54

BEIJING - Twenty-one banks agreed in Shanghai on Saturday to sell loans on China's interbank market after the government allowed the transactions for the first time.

The banks include Industrial and Commercial Bank of China Ltd, HSBC Holdings plc and China Construction Bank Corp.

The global financial crisis showed the inefficiency of risk management, People's Bank of China Governor Zhou Xiaochuan said at a ceremony in Shanghai. The loan transfer plan was a new product in the nation's interbank market and will improve banks' risk-management abilities and will help with the central bank's macro control, he said.

"Inter-bank loan tranfers will allow banks to complement each others' businesses because some lenders have ample liquidity but are short of clients," said Zhao Qingming, a senior analyst in Beijing at China Construction Bank, the country's second-largest lender. "The tranfer also enables banks to better manage liquidity, especially under the government's loan target control this year."

Chinese banks have increased their loans by an average of 20 percent annually since 2005 to sustain economic growth. Lenders had 45.7 trillion yuan of local currency denominated loans outstanding as of Aug. 31, according to the central bank.

The nation's policy makers aimed to cap new loans at 7.5 trillion yuan in 2010, down 22 percent from a record last year, on concerns that a credit boom will lead to an asset bubble and rising numbers of bad loans.

The start of a centralized and regulated loan transfer market will improve liquidity of loan assets at banks and the pricing mechanism of credits, ICBC Chairman Jiang Jianqing said. It will also allow the market to better set interest rates, he said.

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