China Merchants Bank to be picky in granting loans

BEIJING Jan 16 (Reuters) - China Merchants Bank (600036.SS) (3968.HK) will have to be selective in its lending this year as Beijing steps up its credit tightening, the medium-sized bank said on Wednesday.

The central bank has been waging a campaign against excess liquidity flooding into the economy through China's massive trade surplus, prompting a sharp slowdown in lending in December.

The People's Bank of China has ordered banks to limit net new lending in 2008 to last year's total of 3.63 trillion yuan and has shown it is serious by assigning quarterly lending quotas to individual banks, bankers and state media have reported.

In an e-mailed statement, China Merchants said it would give priority to loyal clients whose borrowing needs are in line with Beijing's guidelines.

The authorities are discouraging loans to industries that pollute and consume a lot of energy; instead they want banks to channel credit to small and medium-sized firms with great growth potential.

"Under the current circumstances, if banks continue to favour big clients, they will not only be unable to meet the borrowing demands of these large customers but may also lose small clients due to the limited lending quota," China Merchants said.

The bank said it would also favour retail customers who bring in fee-based business.

The PBOC's tightening has led to interest rates on discounted bill financing rising to more than 10 percent, well above the benchmark one-year lending rate of 7.47 percent, the bank said.

Ma Weihua, China Merchant Bank's president, was quoted by state media on Monday as saying that Chinese lenders faced unprecedented challenges as a result of financial market volatility sparked by domestic tightening and U.S. subprime woes. (Reporting by Langi Chiang; Editing by Alan Wheatley)