China's New Bank Loans to Fall 17% in 2010: JP Morgan Chase Analyst

BEIJING, Feb. 22 -- China will see a cut of about 17 percent in new bank lending this year from the unprecedented level a year earlier as the government has taken steps to prevent rising inflation fears, said an analyst of JP Morgan Chase.

"While lending support for real economic activity is expected to continue, banks are likely to be more vigilant on shorter term credit facilities, given the regulator's anxiety over asset bubbles and capital adequacy ratios," said Jing Ulrich, Chairman of China Equities and Commodities of the U.S. bank in a research note Saturday.

Chinese banks lent a record 9.6 trillion yuan of new loans in 2009 to spur economic recovery amid the worst global financial crisis in decades. But that also prompted fears that hefty money helped ignite property and stock market bubbles.

To soak up potential excessive liquidity, the People's Bank of China, or the central bank, had hiked banks reserve requirement ratio twice since January.

"Policymakers are becoming more concerned about containing inflationary expectations and managing the risk of asset price bubbles as a result of last year's aggressive expansion of credit," said Ulrich.

The consumer price index (CPI), a main gauge of inflation rose 1.5 percent in January, while new lending hit 1.39 trillion yuan, down 14.2 percent from January 2009.

The year 2010 was likely to be characterized by further policy tightening as further reserves requirement ratio increases and interest rate hikes are expected, she said.

She also expressed concerns about capital inflows and the continuity of the export recovery would limit the scope for interest rate rise.

Since the end of last year, the central bank has repeatedly vowed to maintain a moderate and balanced pace of credit growth in 2010 and to guide financial institutions in a bid to avoid big fluctuations in loan growth.