China Tells Banks To Step Up Lending To Lift Flagging Growth

(Reuters) - China has told its banks to issue more loans in the final months of 2014 and has relaxed limits on their loan-to-deposit ratios to help hit a record new lending target as the government steps up efforts to lift flagging economic growth.

Two sources with knowledge of the matter said China's central bank would now allow banks to lend an unprecedented 10 trillion yuan ($1.62 trillion) for all of 2014, up from what Chinese media have said was a previous target of 9.5 trillion yuan.

Bank lending is a crucial part of China's monetary policy as the government tells commercial banks how much to lend and when to lend each year.

The People's Bank of China is also allowing banks to lend more than 75 percent of their deposits, injecting flexibility in a rule that was meant to control lending activity.

So far, Chinese banks have disbursed 8.23 trillion yuan worth of loans between January and October, so they will have to quicken the pace in November and December if they are to meet the new 10 trillion yuan target.

The central bank was not immediately available for comment.

The move comes a day after China's inflation slipped to a five-year low, raising expectations that Beijing would move more aggressively to head off the risk of deflation.

As recently as Nov. 21, the PBOC also made a surprise cut in interest rates in an attempt to re-energies the world's second-largest economy, where annual growth could sag to its lowest in 24 years as cooling domestic investment and a slowing housing market hurt activity.

It described the move as being neutral for monetary policy and said it was intended to lower real interest rates, having said for months that China did not need to adopt "strong" stimulus to spur its economy.

China had not officially announced its lending target for 2014, though Sheng Songcheng, the head of the statistics department at the central bank, was quoted by local media in July as saying that banks were lending more to the housing market to support the cooling sector.

Sheng said banks were displaying "forceful" support for the slowing real estate market and said then that they were likely to issue 9.5 trillion yuan in new loans.