Engen Tham Shanghai
China hopes that last week’s interest rate cut will increase lending into the economy to shore up flagging growth, but measuring any rise will be impeded by a number of tricks the country’s bankers use to manipulate the figures.
Chinese banks, which are heavily controlled by the government, are often instructed to match their lending practice to further official policy, and when the People’s Bank of China (PBoC) cut rates for the first time in two years on Friday, it made it clear that helping smaller firms gain access to credit was among its goals.
Outstanding yuan loan growth slipped to its slowest in almost nine years in October, and the PBoC’s efforts might well succeed in raising the headline figures, but bankers say it is commonplace to cook the statistics to hit targets.
One trick is to extend a loan, but then ask the borrower to use a portion of the fund to purchase wealth-management products sold by the bank.
Another technique is to require a portion of the money lent – anywhere between 30 and 40 percent, according to bankers – returned as deposits.
“It’s just internally generated business through a dummy counterpart,” said Jimmy Leung, banking and capital markets leader and partner at PwC China. The banking regulator has said these practices are illegal, but says only “some commercial banks” engage in them. Bankers say manipulation is still rampant.
As the world’s second-biggest economy heads for its slowest yearly growth in 15 years, authorities have been stepping up efforts to reduce the cost of financing for small and medium-sized enterprises, which included instructions from China’s cabinet to “prevent the illegal diversion of loans and ensure that loan funds flow directly to the real economy”.
In early September, the China Banking Regulatory Commission (CBRC) posted a notice asking banks not to “use underhand measures to illegally attract and falsely increase deposits”.
But bankers say the efforts are slow and ineffective.
Another banker said agreements to return some of the loan as deposits have now become verbal.
“The CBRC is feeling the stones to cross the river… but bankers have already reached the other side,” he said. – Reuters