China's largest commercial bank announced Wednesday a reduced lending target for this year and vowed to control loans to over-invested industries, answering government calls to rein in financial risks in loan growth.

The Industrial and Commercial Bank of China (ICBC) plans to lend 350 billion yuan (US$42.2 billion) worth of commercial loans this year, down 40 billion yuan (US$4.8 billion) from the credits it compiled last year, it said.

The bank is the first of the four state-owned commercial banks to announce plans in response to calls by Premier Wen Jiabao on Tuesday to restrict loans to the steel, aluminum and cement sectors, where the problem of excessive investment has grown to serious levels.

"This is not only necessary for implementing a prudent monetary policy, but is needed to prevent lending risks and ensure stable business growth (of banks)," ICBC President Jiang Jianqing told the bank's regional chiefs at a conference Wednesday.

Jiang said his bank will "strictly control" new loans to steel, aluminum and cement producers, and will step up scrutiny of consumer loans to the real estate and auto sectors, where rapid growth last year has also raised worries about overheating.

Chinese banks lent aggressively last year to tap a recovery in economic activity, pushing monetary growth to nearly 20 percent and triggering concerns about financial risks after signs of overheating were detected in some sectors. The Chinese economy grew by a robust 9.1 percent last year, its fastest pace since 1997.

"The best way to contain excessive investment is to control loans," said Wang Yuanhong, a senior analyst with the State Information Center.

Bank loans make up 50-60 percent of China's fixed asset investments.

"The percentage (of bank loans) is presumably even higher in those overheated industries," Wang said.

The People's Bank of China announced its 2004 target for M2 growth, the broad measure of money supply, at 17 percent, down from last year's real growth of 19.58 percent.

ICBC also said it has set an operating profit of 70 billion yuan (US$8.4 billion) as its 2004 target, an increase of 12.7 percent from last year.

It plans to reduce its outstanding non-performing loans, by 60 billion yuan (US$7.2 billion) to below 18 percent of total loans outstanding, in accordance with the internationally accepted five-category classification banking system.

The bank chalked up a profit of US$776 million in its foreign exchange business last year, up 20 percent year-on-year.

The Chinese Government injected US$45 billion of capital into two state-owned lenders - the Bank of China and the China Construction Bank, which were picked for a pilot joint-stock reform - to prepare them for initial public offerings.

ICBC, which failed to win the first round of recapitalization, is widely believed to be the next candidate. The last of the four state-owned commercial banks is the Agricultural Bank of China.

(China Daily February 12, 2004)