China's banks raise rates in order to please the authorities

Some Chinese banks have dramatically increased the interest rates on loans, obeying orders of the government to limit credit growth after the new jump in the beginning of the year, reported the state newspaper China Securities Journal on Wednesday. In the instructions, orders from the head office in some banking division, said that banks should strictly adhere to the credit of quotas in January, the newspaper said. Regulators require the normalization of credit activity in the campaign against inflation. Despite the fact that consumer price inflation fell in December to 4.6 percent per annum, many analysts expect that in January it will be the highest in more than two years, and warned that excessive bank lending will exacerbate the problem. The newspaper China Business News today reported that since the banks have already issued a credit to 1.2 trillion yuan ($ 182 billion), representing 17 per cent quota fixed by the authorities to fly in 2011. From the beginning, the banks are torn between conflicting desires. On the one hand, they want to quickly give more credit to capture a significant share of lucrative credit business, before the government would tighten policy again. On the other hand, they fear to act so aggressively, so as not to provoke a test or even punishment from the authorities. China Securities Journal writes that banks are now trying to stop the excessive lending. "To ensure that the credit crunch will not exceed the quota, head office ordered that all branches have raised interest rates", - quotes the newspaper quoted an anonymous representative of a large state-owned banks. The article does not say whether the bank also had to raise rates due to increase their own financing costs. Before the Lunar New Year's banking system has suffered from an unprecedented liquidity crisis, which inflated money market rates and forced the central bank to pour money into the economy, despite its desire to tighten policy. For industries, highly polluting or consume too much energy, some banks set lending rates by 45 per cent higher than the prime rate securities, which now stands at 5.81 percent on an annual credit, the newspaper said. Lending rates for member companies about 30 per cent above base rate, although the best customers can still get a loan with a 5-percent discount from the base rate. The newspaper also quoted a representative of another bank, which said that total lending in January, may not exceed 12 percent of the annualized quota of about 7.5 trillion yen. Source: Bankir.Ru