Business
China Raises Bank Reserve Level To Contain Lending
China ordered banks Friday to increase reserves for a second time in a month to cool a credit boom without resorting to interest rate hikes that might derail a recovery in the world’s third-largest economy.
Chinese leaders worry that a stimulus-driven torrent of lending is fueling a dangerous bubble in stock and real estate prices. They also are concerned that the flood of money surging through the economy is adding to inflation.
Beijing declared China had emerged from the global crisis after economic growth rebounded to 10.7 percent in the final quarter of 2009. But authorities say the global outlook is still uncertain, and analysts expect them to try to avoid rate hikes even as they start winding down their stimulus.
Banks were ordered Friday to increase reserves by half a percentage point to 16.5 percent for large lenders and to 14.5 percent for smaller institutions. Rural lenders that serve farmers were exempted to guarantee adequate credit for agriculture.
The move was in line with expectations that Chinese authorities were trying to control credit and keep the recovery on track, analysts said. But it still sent European bourses and Wall Street stock futures into the red.
“The message coming out of China in recent weeks has been quite clear as 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,” Jing Ulrich, JP Morgan’s chairwoman for China equities, said in a report.
“We have already seen some scaling back of incentives that have spurred record sales in the domestic property sector and authorities have made clear that they will step up scrutiny of property lending to curb ‘overly rapid’ price gains in some cities.”
The government reported Thursday that January bank lending rocketed to 1.4 trillion ($200 billion), nearly one-fifth of the planned 2010 total. That was despite a January. 12 order to banks to raise reserves, also by 0.5 percent, and repeated commands to keep lending at sensible levels.
Also Thursday, the government said the rise in housing costs in 70 Chinese cities accelerated in January, jumping 9.5 percent from a year earlier, up 1.3 percentage points from December’s growth rate.
Land prices surged by 106 percent last year, according to Standard Chartered Bank, and Chinese newspapers are filled with reports of well-heeled investors paying record prices for luxury apartments and villas.
The country’s biggest lender, Industrial & Commercial Bank of China Ltd., said this week it will reject loans to real estate and industrial projects deemed too dirty, energy-intensive or unnecessary.
Banks are expected to scale back lending to roughly 7.5 trillion yuan ($1.1 trillion) this year, after handing out some 9.5 trillion yuan ($1.4 trillion), the industry’s top regulator, Liu Mingkang, said last month.
Analysts say Beijing’s move in raising reserves while leaving the total loan target for the year unchanged indicates it will let banks lend the full amount but is trying to force them to smooth out lending over the year instead of making the bulk of loans in the first few months as they usually do.
“Payment of tuition fees for undergraduate/postgraduate studies shall be subject to a maximum limit of $25,000.00 per semester,” the Manual states.
The expansion of international card limits also reflects growing confidence among lenders that foreign exchange liquidity has improved enough to support retail dollar transactions.
Speaking recently at the BusinessDay 14th Annual CEO Forum in Lagos, CBN Olayemi Cardoso, governor of the CBN said buying and selling activities now increasingly determine outcomes in the foreign exchange market, unlike in the past when market participants relied heavily on routine Central Bank interventions.
According to Cardoso, Nigeria’s net foreign exchange reserves have risen from just over $3 billion at the start of the reform programme to more than $40 billion, while gross reserves have climbed to about $52 billion, providing stronger confidence for investors and enabling the Central Bank to reserve interventions for periods of market stress rather than day-to-day liquidity management.
The restoration and expansion of international naira card spending limits are increasingly being seen as one of the clearest signs that the benefits of the CBN’s foreign exchange reforms are beginning to reach households, students and businesses making legitimate cross-border payments.
The Secretary-General and Chief Executive Officer, WEC, Dr Angela Wilkinson, disclosed this in a statement, last Thursday.
“Nigeria’s participation comes at a pivotal time as the country seeks to expand energy access, strengthen energy security, accelerate gas development and mobilise the capital required for industrialisation and sustainable economic growth.
“WEC Nigeria will convene leaders from across the energy ecosystem, apply the WEC’s globally recognised Energy Trilemma framework to Nigeria’s unique context, and promote evidence-based dialogue, practical collaboration and informed policymaking.
“It will also ensure that Nigerian and broader African perspectives contribute meaningfully to global energy conversations,” she said.
Wilkinson expressed confidence that Nigeria would play a significant leadership role at the World Energy Congress scheduled for Riyadh in April 2027 and beyond.
The statement also quoted the Chairman of WEC Nigeria, Isa, as describing the country’s participation as an opportunity to deepen national and African leadership within the global energy community through practical solutions tailored to regional development priorities.
He said the platform would promote collaboration across sectors and attract sustainable investments into Nigeria’s energy sector.
The Chief Executive Officer of WEC Nigeria, Wunti, was quoted in the statement as saying that the council would connect leadership, evidence and investment to build a secure, affordable and sustainable energy system.
“This system will be capable of driving economic growth and shared prosperity.”
According to him, the platform will also connect Nigerian institutions and businesses with international knowledge, technology, partnerships and investment opportunities through the World Energy Council’s global network.
Recall that WEC, founded in 1923, is the world’s oldest independent and impartial community of energy leaders and practitioners, advancing informed, collaborative and practical action across the global energy system.
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