China asks banks to reduce lending to contain risk of financial bubbles

China asks banks to reduce lending to contain the risk of financial bubbles

Business News: China asks banks to reduce lending to contain risk of financial bubbles.

Chinese regulators are asking banks to reduce their loan portfolios this year to protect themselves from bubble risks in the country’s financial markets, experts said Friday.

Banks, including foreign and state-owned credit institutions, have received directives from the central bank in recent days to limit the total amount of their loans this year, three bankers said anonymously.

The China Banking and Insurance Regulatory Commission (CBIRC) is also “seriously” examining the misuse of corporate loans to individual borrowers for personal investments, two of them said, which violates Chinese regulations.

“A large amount of money in the name of business loans flew into the real estate and equity markets during last year’s pandemic,” said one of the bankers.

“The banks are rushing to collect the loans they made last year and will not extend those loans.”

The CBIRC and the People’s Bank of China, China’s central bank, did not immediately respond to requests for comment.

China significantly increased its credit support to the economy in 2020 with the COVID-19 pandemic, but some individuals spent the money buying properties and stocks, fueling bubbles in the markets, the sources said.

Business loans are to be used for operating costs such as equipment rentals and purchases. The banking watchdog prohibits borrowers from using such equity loans and property purchases.

According to the government report released on Friday, loans to micro and small businesses by large commercial banks increased by 50% last year and are expected to expand further by 30% this year. China has also asked banks to raise lending and lower interest rates for small businesses in 2020.

Guo Shuqing, head of the CBIRC, said Tuesday he was “very concerned” about the risks of bubbles bursting in overseas markets and highlighted the risks of bubbles as a central issue for China’s real estate sector.

China’s CSI300 index lost more than 1% in March.