Outstanding loans in China were said to have fallen in the first two weeks of April amid a backdrop the authorities are tightening scrutiny over lending by banks.

But analysts said yesterday it was still too early to translate the drop as a sign that banks are starting to tighten their credit as the second half of the month may see a rebound in loans. However, they agreed that there is no need for China to further ease credit after the stunning growth in the first quarter.

The outstanding loans dropped in the first two weeks of April by a large amount, the Shanghai Securities News said yesterday, quoting unidentified sources.

It reported that the outstanding loans of the big-four state-owned banks - the Industrial and Commercial Bank of China, Bank of China, China Construction Bank and the Agricultural Bank of China - dropped by about 90 billion yuan (US$13.2 billion) in the first two weeks of this month.

"As statistics in the first quarter showed, many banks tend to bunch much of their lending into the latter part of a month as credit officers are under the peer pressure to meet their monthly credit quota, which means that credit may bounce back again in the later half of this month," said Lu Zhengwei, Industrial Bank's chief economist in Shanghai, yesterday.

The trend of a surge in credit in the second half of a month indicated that the rise may not be a real indicator of economic activities recovering but the work of credit officers who are under competitive pressure to issue as many loans as possible.

"However, the authorities are taking a closer look at the skyrocketing new credit in the first quarter. Banks may slow down their credit to avoid being scrutinized by the authorities," Lu said.

Banks in China extended a record 1.89 trillion yuan in local currency-denominated loans in March, bringing the first quarter total to 4.58 trillion yuan and near the government's full-year target of at least 5 trillion yuan.

"Controlling delinquency and monitoring a potential return of inflationary pressure may be the new focus of China's financial regulators and central bank," said Sherman Chan, a Moody's Economy.com economist.

(Shanghai Daily April 22, 2009)