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Banks tighten grip on property loans
By Zhang Dingmin (China Daily)
Updated: 2005-03-16 22:47 China's central bank announced
measures to tighten property loans Wednesday, in a further sign of concern about
a property bubble.
The People's Bank of China (PBOC) also reduced the interest rate on banks'
excess reserves -- a move analysts say is aimed at alleviating liquidity
difficulties among businesses.
A woman walks past
a poster on housing loans in Liaocheng, Shandong Province in this March
13, 2005 photo. The central bank announced on March 16 that mortgage rate
for individual house buyers will rise by 0.2%.
[newsphoto] | Starting Thursday, commercial banks
are barred from lowering interest rates on consumer housing loans to below 0.9
per cent of the PBOC's benchmark rates.
That brings the upper limit of interest rates on loans longer than five years
up by 20 basis points to 5.51 per cent, the bank said.
It also allows commercial banks to raise down payments from 20 per cent to 30
per cent in cities where the lenders believe property prices have been rising
"too fast."
"That means it has become the decision-makers' unuttered view that there has
been property bubble in some cities," said Wang Songqi, deputy director of the
Finance Research Institute under the Chinese Academy of Social Sciences.
"Although the measures are only a moderate tightening, they sent a signal to
the market," he added.
China's property prices rose rapidly during the past one year or so, and have
long prompted worries among some analysts and government officials about a
property bubble -- although many hold the growing trend of urbanization is
delivering substantial support to the industry.
Real estate investment slowed down last year, but the continued uptrend in
prices "need close attention," the central bank said in its 2004 fourth quarter
monetary policy report, released last month.
Nine cities reported property price increases heftier than 9 per cent last
year, including Shanghai and Nanjing of East China's Jiangsu Province.
The PBOC also announced Wednesday its decision to reduce the annual interest
rate on excess bank reserves, which banks keep besides required reserves
basically to meet payment needs, to 0.99 per cent from 1.62 per cent previously.
The rate cut "will help commercial banks further improve their efficiency in
fund use and liquidity management, and will promote the liberalization of the
interest rate regime," the PBOC said in a statement.
Wang said the move is aimed more at pushing the banks to lend more to
businesses, many of which -- particularly the smaller ones --, are feeling
liquidity difficulties partly as a result of the ongoing macro management.
China took a slew of measures as early as the second half of 2003 to curb the
rapid growth in bank loans and fixed investment, which gave rise to worries
about overheating.
"Liquidity is already on the tight side (among businesses)," Wang said.
The central bank has scaled down its money supply growth target for this year
to 15 per cent from last year's 17 per cent.
The growth of broad money supply slid to 13.9 per cent at the end of February
from 14.1 per cent one month earlier, which some economists worry is a bit too
slow to support this year's 8 per cent economic growth target.
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