China's banking regulator has ordered some of the major banks to limit lending, with a view to control the pace of credit growth this year.
The affected banks are reported asked to lift their required reserve ratio, which will make them lock up a greater proportion of their deposits with the central bank.
It may be noted here that the greater the proportion of deposits locked up with the central bank, the less cash is left with the affected banks to lend as loans.
Speaking on the issue, China Banking Regulatory Commission’s chairman Liu Mingkang said, “We have a number of regulatory requirements to ensure prudent supervision. For those that failed to meet these standards, we told them to limit lending.”
Premier Wen Jiabao announced that the pace of credit growth will be managed this year after banks approved around 9.59 trillion Yuan (equivalent to $1.4 trillion) in new loans during 2009 to support country’s stimulus program in wake of recession.
Reports suggest that new loans in the first week of this year advanced by 600 billion Yuan, prompting the central bank to lift reserve requirements for all banks by 50 basis points from January 18.