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Last Updated: Friday, 3 November 2006, 13:10 GMT
Bad debts mount for Chinese banks
Yuan
Excessive lending has built up a huge backlog of bad debts in China
China's runaway economic growth has created a parallel boom in debts, with top banks amassing one trillion yuan (70bn; $135bn) of bad loans.

The enormous bad debts total has prompted the central bank to take measures to curb excessive lending.

The People's Bank of China (PBOC) has ordered commercial banks to put another $19bn in reserve at the central bank, reducing the amount they can lend.

It is the third time in five months that the bank has taken such a step.

Awash with cash

The PBOC issued a statement explaining that excess liquidity in the financial system needed to be curbed.

It said that China's huge trade surplus with the rest of the world had combined with massive investment from overseas companies to encourage excess credit.

Now the PBOC wants to slow down lending in order to ensure stable growth in credit.

The latest rules from the PBOC mean that banks must increase the proportion of deposits held in reserve to loans by 0.5% to 9% on 15 November.

This is the third time this year the required deposit ratio has been raised, with 0.5% increases in July and August.

The latest move means that the banks will have to add another 150 billion yuan ($19bn) to their reserves.

However, China's banks already hold large reserves and observers doubted that the move would have a significant impact on lending.

"It will not cause a slowdown in loan growth and shall only prevent acceleration in loan growth," Jun Ma of Deutsche Bank in Hong Kong said.




SEE ALSO
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