China banks cut back lending to foreign banks

SHANGHAI (Reuters) - Some Chinese banks have cut lending to foreign banks in China's interbank money market because of the global financial crisis, but trade continues and foreign banks remain able to operate, traders said on Thursday.

Dealers at over half a dozen Chinese and foreign institutions, who declined to be named because of the sensitivity of the issue, said U.S. and some other foreign banks were finding it harder to borrow from the market.

A number of Chinese banks have temporarily stopped offering new lending to U.S. banks in yuan and other currencies, because of uncertainty about risk, three traders said. Similar caution in lending has been seen in markets around the world.

"We have had difficulty borrowing money from Chinese banks since the start of this week," said a dealer at the branch of a U.S. bank in Shanghai.

However, he and others said U.S. institutions had not been completely cut off from access to funds.

"We continue to conduct business as usual," Citibank China, a unit of U.S. giant Citigroup (C.N), said in a statement. It said the ratio of its loans to deposits in China remained "well under" the country's regulatory requirement of 75 percent.

A spokeswoman for Bank of Communications (601328.SS), one of China's five biggest banks, said it was continuing "normal" trade with foreign banks in the interbank market, although she added that it would carefully monitor risks.

Foreign banks have been boosting their presence in China's money markets since last year, when they were allowed to begin incorporating locally. They borrowed a total of 345 billion yuan ($51 billion) from the interbank market in the first half of this year, accounting for 14 percent of total borrowing.

Several traders said that late last week, Chinese authorities asked Chinese banks to report their exposure to U.S. financial institutions. That prompted Chinese banks to become more cautious about lending to foreign institutions.

The China Banking Regulatory Commission (CBRC) on Thursday denied a report in Hong Kong's South China Morning Post that the CBRC had told Chinese banks to stop lending to U.S. banks in the interbank market. It called the report wrong and irresponsible.

"If they are not willing to lend, this is the normal practice of risk control," CBRC vice chairman Wang Zhaoxing told Reuters.

A dealer at a major Chinese state-owned bank in Beijing said: "We are not aware of any official restrictions, but we have halted lending to some foreign banks because of risk controls."

(Additional reporting by Samuel Shen)

(Writing by Andrew Torchia; Editing by Jonathan Hopfner)