Monday, November 3, 2008

China removed cap for commerical loans

China's central bank said it is no longer capping the amount of loans that commercial banks can make, abandoning an often-criticized policy as it redoubles efforts to sustain the nation's economic growth amid the global financial crisis. In an unusual dispatch carried by the official Xinhua news agency during the weekend, the spokesman for the People's Bank of China clarified its current policy after a string of three interest-rate cuts, the most recent of which was unveiled Wednesday. Some economists had questioned whether the rate cuts would help boost flows of credit to households and businesses because the central bank since late 2007 has also imposed strict limits on the amount of new loans banks can make. Those limits were designed to keep China's economy from overheating, at a time when growth was still running relatively high. ... The use of credit quotas -- a practice that had been largely phased out in recent years as China's state-controlled banks were reorganized to run on a more commercial basis -- was an attempt to curb growth in bank lending without raising interest rates. The measures appeared to be effective, reducing growth in lending from a pace of above 17% last year to nearer 14% in recent months. Critics, however, have said that much of the growth in credit simply ended up in harder-to-track areas like underground lenders or off-balance-sheet vehicles set up by banks.

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