May 14, 2009 / 2:23 PM / 10 years ago

UPDATE 1-China urges banks to keep lending

(Adds details)

BEIJING, May 14 (Reuters) - The People’s Bank of China will stick to its more relaxed monetary stance in order to prop up growth in the world’s third-largest economy, the central bank said on Thursday.

In a statement posted on its website, the PBOC instructed commercial banks to ensure that a “reasonable” pace of credit growth is translated into support for the economy.

The notice was the latest confirmation that policymakers are happy with the record-breaking pace of lending so far this year as Beijing does all it can to achieve this year’s target of 8 percent growth in gross domestic product.

“The recent strong money supply and lending growth is a reflection of the appropriately relaxed monetary policy, which will help curb deflation expectations, enhance confidence and support stable and rapid economic development,” the PBOC said.

The central bank posted the statement a day after senior PBOC officials met their counterparts from the China Banking Regulatory Commission.

The PBOC said the economy had performed better than expected thanks to prompt measures by the government to counter the global financial crisis.

To complement the government’s 4 trillion yuan ($585 billion) stimulus package, banks lent a record 5.17 trillion yuan in the first four months of 2009 — more than Beijing’s minimum target of 5 trillion yuan for the whole of the year.

“Financial institutions should continue to implement an appropriately relaxed monetary policy in the proper way,” the central bank said.

Economists do not rule out a clampdown on credit later in the year if the pace of new lending reaccelerates. New loans in April of 592 billion yuan, though greater than in April 2008, were sharply down on the first-quarter pace.

But for now, the central bank and the banking regulator are limiting themselves to exhortations to lenders not to lower their credit control criteria as they expand their loan books.

Commercial banks must meet prudent management standards in relation to capital adequacy ratios, loan concentration and risk provisions, the central bank said.

As for financing fixed-asset investment, banks must ensure that projects meet the minimum equity capital requirements set by the government.

Banks must provide more loans to agriculture, small and medium-sized enterprises and areas hit by last May’s devastating earthquake in Sichuan, the statement added. (Reporting by Zhou Xin and Alan Wheatley, editing by Mike Peacock)

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