By Agency reporter   Monday, 27 Sep 2010

 

 

BEIJING: China has started allowing banks to sell loans to each other, an important step towards giving market forces bigger sway in the country’s financial markets, the central bank said on Saturday.

 

The interbank loan transfer system would help lenders keep a handle on risks and would also promote the liberalisation of interest rates, which are tightly controlled by the government at present, central bank governor, Zhou Xiaochuan said on Saturday.

 

Reuters reported that the first loan transfer deals were also announced, including one between Industrial and Commercial Bank of China and Bank of Communications, two of the country’s largest lenders.

 

Institutional investors would eventually be allowed to participate, serving as an “effective link between the capital market and the credit market”, Zhou said.

 

“Given the rapid lending growth in the recent past and continuously growing pressure on bank asset quality, the launch of a national interbank loan transfer trading will be significant,” he added.

 

He said that it would enhance the effectiveness of monetary and financial policies, improve credit structure at banks and also play a role in controlling financial risks.

 

Chinese banks issued 9.6tn yuan ($1.4tn) in new credit last year in a government-directed lending binge that analysts have warned could saddle them with a pile of bad debt down the road.

 

Although lending had slowed this year, banks still occasionally struggle to meet the regulatory requirement of a loan-deposit ratio of 75 per cent. With the ability to transfer loans off their balance sheets, it should be easier for banks to comply with the rules.

 

Source: The Punch