CBRC to boost control of lending to local govts

The China Banking Regulatory Commission has drafted a guideline to boost the risk control of local governments' financing vehicles, the Shanghai Securities Journal reported on Thursday.

The guideline reiterated that the authority will control the total volume of loans that go to local governments' financial vehicles, or LGFV, demanding that the volume should not surpass the level of late 2011.

Chinese banks had 9.1 trillion yuan ($1.5 trillion) of outstanding loans issued to LGFV as of September 30, 2011, and at least 65 percent of these loans were fully covered by cash flows. Shang Fulin, chairman of the CBRC, said recently that the current loans amount to about 9.3 trillion yuan.

Meanwhile, to avoid excessive concentration of loans going into LGFV the regulator requires banks to keep the percentage of those loans below the 2012 level.

According to a mid-term report of China Merchants Bank, outstanding loans to LGFV represented 6.14 percent of the bank's overall loans by last June, down 1.31 percent from late 2011.

Local governments, barred from directly selling bonds or taking bank loans, have set up more than 6,500 companies, known as financing vehicles, to raise money for projects.