Cary Huang in Beijing Mar 10, 2010
Bank of China is targeting new loan growth at about 10 per cent this year, a sharp slowdown from last year's record pace when the lender topped other banks in extending new loans, chairman Xiao Gang said yesterday.
Xiao also said on the sidelines of the National People's Congress in Beijing that the bank had no other fund-raising plans in the A-share market after its 40 billion yuan (HK$45.5 billion) bond issue and is now seeking approval from shareholders for a mandate to sell shares in Hong Kong.
Chinese banks made a record 9.6 trillion yuan in new loans last year, fuelling concerns that they were sowing the seeds of a new crop of bad debt down the road.
The China Banking Regulatory Commission (CBRC) has been pressing lenders to replenish their capital base after last year's surge in lending, and a number of banks are in the process of raising fresh equity or selling bonds.
"We are targeting 10 per cent annual growth this year, which is slower than last year's," Xiao said.
The CBRC has targeted 7.5 trillion yuan worth of new lending by the banking industry this year. Since the beginning of the year, the People's Bank of China twice raised commercial banks' required reserve levels, sending clear messages to banks that it wants more reasonable bank lending, and it is paying close attention to inflation.
The country's largest foreign exchange lender said in January it planned to issue as much as 40 billion yuan in six-year convertible bonds to shore up its capital base and maintain its lending capacity.
"We are waiting for an approval in a meeting at the end of his month for a mandate to sell up to 20 per cent of existing H shares," Xiao said. He said the bank was also considering options other than fund-raising to boost its capital, such as retaining more profits and restructuring its capital structure.
"We will retain more profits as reserves this year to supplement capital," he said, suggesting that the blue chip would reduce the dividend.
Xiao said the bank's loans to local governments were safe as most of them were made to big cities instead of rural counties.
Off-balance-sheet borrowing by cities, counties and provinces helped finance a wave of public-works construction last year that contributed to the nation's growth.
Now regulators in Beijing, worried that local governments will not be able to pay back all their loans, are increasing their scrutiny of this kind of debt.
Estimates of the total debt accumulated by investment vehicles set up by local governments range from 6 trillion yuan to 11 trillion yuan.
"Our loans would be much safer as most of them were made to provincial governments or prefecture-level governments, like provincial capital cities," Xiao said.
Xiao said the bank would change its lending structure by increasing loans to services and environmental protection and industries, and small and medium-sized enterprises.
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