The People’s Bank of China (PBOC) has reportedly issued an order for leading banking sector financial institutions to scale back credit growth for the remainder of 2021, due to concerns about a sharp rise in lending during the first two months of the year.
Sources said to Bloomberg that PBOC held a meeting with the banks on 22 March, ordering them to keep new lending in 2021 on par with the levels in 2020.
According to the sources PBOC also required that certain foreign banks dial back on lending via “window guidance,” following a sharp expansion in their balance sheets last year.
Chinese banks extended a record-breaking 19.6 trillion yuan (USD$3 trillion) in credit in 2020, as Beijing endeavoured to keep the economy on an even keel amidst the turmoil created by the COVID-19 pandemic.
New loans in China totalled 4.9 trillion yuan in the first two months of 2021, for a 16% increase compared to the same period last year. This rapid growth prompted PBOC to tell Chinese banks to cap first quarter lending at the amount for the same period in 2020.
Should full year lending in 2021 remain on par with 2020, this would bring the annual increase in the outstanding loan balance of Chinese banks to 11%, or the lowest level in over 15 years.