THE central bank was considering changing a key component of its monetary policy management by altering the way it manages bank credit, three sources close to the matter told Reuters on Tuesday.
Under the proposed changes, the People s Bank of China (PBOC) could judge how much a bank could lend by looking at its capital adequacy ratio, liquidity conditions and provisions for bad loans.
That meant the PBOC could set different deposit reserve ratios for banks and adopt more frequent use of window guidance, which was a direct order to bankers to rein in bank credit, the sources said.
They said the PBOC could also step up its issuance of punitive central bank bills to banks that had breached their lending orders.
If effected, these changes would be a shift away from the present one-size-fits-all policy where Chinese banks, whether big or small, are required to have a debt-to-deposit ratio of 75 percent.
After China unleashed an extraordinary surge in bank lending in 2009 to foster its economic growth following the global financial crisis, the PBOC has been trying to rein in lending and money growth this year to stop the economy from over-heating.
China has officially switched its monetary policy to prudent from its earlier moderately loose stance, in part due to rising price pressures.
The government has yet to announce its annual loan target for next year, although State media said earlier this month that China would set a target for about 7.5 trillion yuan in new loans in 2011, level with this year s target.
Analysts said the changes, if effected, would give China and its banking sector more flexibility. Banks may, for instance, get guidance on how much to lend on a monthly or quarterly basis, instead of the present annual target.
Chinese banks had issued a total of 7.44 trillion yuan in net new loans by the end of November, putting themselves firmly on course to overshoot this year s credit target.(SD-Agencies)
