Chinese banks told to lend reasonably, responsibly

Chinese banks received a warning on Saturday not to lend too aggressively and to verify that their loans are being used for the intended purpose.

The China Banking Regulatory Commission issued two directives on working capital and individual loans with the overarching aims of strengthening risk management and ensuring that banks lend at a steady, responsible pace.                                           

Banks lent a record 9.6 trillion yuan ($1,406 billion) in 2009 as they rushed to support the government's economic recovery programme. This year Beijing has set a loan target of 7.5 trillion yuan.                                           

"Lenders should extend loans according to the real demand of borrowers and must not set unreasonable loan quotas or scramble to extend loans," according to the regulation on working capital loans, which was released at a CBRC meeting open to the media.                                           

In the same vein, the CBRC reminded banks that working capital loans must not be used to finance capital investment or equity stakes.

The regulator also confirmed draft rules that personal loans of more than 300,000 yuan may not be disbursed to the individual borrowing the money but must be transferred to the intended end-recipient, such as a house seller.                                           

The wording of the directives reflects fears that some loan proceeds were improperly diverted into the property and stock markets last year.