China's banking regulator plans to cap new lending at around 8 trillion yuan next year, but the target might be subject to instant changes according to the economic environment, a source with knowledge of the matter said.

The regulator has retained flexibility in its credit policy, as there were still uncertainties lying ahead, the source, who declined to be named, told China Daily yesterday.

The credit policy is in line with the tone set by the Central Economic Work Conference that ended on Monday, in which the government pledged to continue with its expansive fiscal and monetary easing policies but reserved leeway for possible policy fine-tuning.

"We will guide Chinese banks to maintain the continuity and stability of their credit policy and enhance the banks' role in supporting the economic development," the China Banking Regulatory Commission (CBRC) said in a statement on its website in response to the pivotal economic conference.

However, it is still up to the People's Bank of China, the nation's top monetary authority, to set the loan target for next year. Conventionally, the central bank will disclose the target sometime after the Central Economic Work Conference. "So far the central bank is still working on the loan target," the source said.

The CBRC's 8 trillion yuan loan target is less than the record-setting 8.9 trillion yuan that Chinese banks advanced in new loans in the first 10 months of this year, doubling the 3.4 trillion yuan that banks gave out in the whole of 2008.

The rapid credit expansion helped China to emerge from the economic doldrums earlier this year, but it eroded Chinese banks' capital position, causing wide speculation that banks were planning to raise a hefty amount of capital from the equity market next year.

Wang Zhaoxing, vice-chairman of the CBRC, made it clear in an article published last week that big State-run lenders and medium-sized banks were now obliged to maintain their capital adequacy ratio above 11 percent and 10 percent respectively, from the earlier requirement of a unified 10 percent for all the banks.

With the more stringent regulatory standards, Chinese banks are expected to raise some 200 billion yuan in fresh capital next year, including 160 billion yuan needed by the top three lenders, to keep their capital adequacy ratio above 12 percent, major domestic brokerage Haitong Securities estimated.

The news that big banks planned to raise funds through new share sales has already weighed on the stock market, which plunged more than 3 percent in one day last month on the market rumor that Bank of China, the nation's third-largest lender, had to raise 100 billion yuan from the bourse.

Yin Zhongli, a senior researcher at the Chinese Academy of Social Sciences, said that although credit growth might slow next year, banks' thirst for capital was still pressing.

He suggested diverting some of the new share sales to the international market to avoid a heavy blow to the domestic capital market, as most Chinese banks were dual-listed in the mainland and Hong Kong and had a good prospect for growth in the eyes of international investors.

(China Daily 12/10/2009 page13)