2011-02-16 15:56

China's banking regulator has told banks to control new lending to local governments, and closely monitor the health of property developers, the official Shanghai Securities News reported on Wednesday.

The China Banking Regulatory Commission (CBRC) has also urged banks to start setting up a system to monitor average daily loan/deposit ratios and report them on a monthly basis, the paper said, citing a notice distributed to banks.

It also plans to introduce two new indicators -- liquidity coverage ratio (LCR) and net stable fund ratio (NSFR), to ward off liquidity risks, it added.

The move comes as policymakers step up their efforts to fight inflation, which they have outlined as a top priority.

As a centrepiece of its economic policy, China sets loan quotas to guide credit issuance by banks. Because of the country's relatively stunted financial markets, these targets are more important than interest rates in controlling the pace of money growth and inflation in the Chinese economy.

Loan quotas took on extra urgency last month because banks began the year by unleashing their customary early-year lending surge at the same time as officials were trying to slow credit expansion to rein in prices.

The central bank raised interest rates last week for the second time in just over six weeks. It has also raised the amount of money banks have to hold in reserve seven times since the start of last year to try to mop up the excess cash in the economy that has fuelled inflation.

The government has also introduced a slew of measures to cool the red hot real estate market, including implementing the country's first property tax in Shanghai and Chongqing.