Chinese lending institutions are subject to tighter controls on risk and borrowers’ credibility according to a new mandate by banking regulators, reports Tortola Capital. The government's order comes as Beijing tries to prevent excessive lending that it says could lead to financial problems while ensuring adequate credit to keep the economic recovery on track.
Chinese leaders worry that a stimulus-driven torrent of lending is fueling a dangerous bubble in stock and real estate prices. Beijing has ordered banks to set aside additional reserves and to keep lending stable, but the central bank has avoided raising interest rates, which might slow down growth.
The China Banking Regulatory Commission, or CBRC, said in a statement on its Web site Saturday that it issued two regulations to increase risk management on personal and working capital loans. The rules took effect Feb. 12. The regulation on working capital loans stated that banks must calculate borrowers' actual needs and also consider their cash flow, liabilities, repayment abilities and other factors when assessing loan applications.
