UPDATE 2-ICBC chairman says not yet time for stronger yuan

(Adds fresh quotes)

By Kevin Lim and Lucy Hornby

SINGAPORE, Nov 13 (Reuters) - The chairman of the Industrial & Commercial Bank of China, the world's largest by market capitalisation, said a stronger yuan would not be conducive to the global recovery, and defended the wisdom of a rash of lending by Chinese banks this year.

China's central bank earlier this week signalled it would consider shifting from an effective peg to the U.S. dollar, which has been in place since mid-2008. The People's Bank of China said it would consider major currencies, and not just the dollar, when guiding the exchange rate []ID:nSP466424].

"I personally believe that an appreciation of the renminbi is is not conducive to smooth global economic recovery at this moment," Jiang Jianqing told reporters during the Asia Pacific Economic Cooperation forum on Friday, referring to the "people's money" or yuan.

"The global economy is still very unstable, off-balance. So stability in currencies and consistency in currency policies is very important, and should not be changed abruptly."

ICBC (1398.HK) and other Chinese banks have sharply increased lending this year in line with the Chinese government's stimulus policies to stave off the financial crisis. ICBC's loans could double this year compared with last, Jiang said, although he noted loan growth was slowing from earlier in 2009 [ID:nPEK304345].

Jiang said infrastucture investments enabled by the stimulus could lay the foundation for China's growth over the next 10 years, shrugging off concerns by many analysts that the stimulus measures have worsened already severe overcapacity in some sectors.

FAST CORPORATE RECOVERY

Despite the rash of new loans, Jiang said he expected the non-performing loan situation in China's banking sector to improve next year, as Chinese firms climb out of the global economic crisis.

"The probability that NPLs in the Chinese banking industry will increase is very low. Last year, and this year, were the most difficult for the Chinese financial sector and corporations," Jiang said.

"Since the beginning of the second half of this year, we've seen a fast recovery for corporations. Last year and this year, the NPL ratio, as well as the absolute amount, was falling. So next year, with a more positive outlook for the economy, we don't expect" to see more NPLs.

A sharp rise in global and Chinese markets this year should still be considered a rebound, and not yet a bubble, since markets were oversold last year, Jiang said, but added that policy makers should be "very careful" about inflation.

ICBC (601398.SS) has applied to open branches in Malaysia as part of its expansion into Southeast Asia, and expects to complete its purchase of Thailand's ACL Bank ACL.BK by early next year, Jiang said.

In September, ICBC bought a 19.26 percent stake in Thailand's ACL Bank and said it planned to make an offer for ACL's remaining shares in a deal worth around $545 million. [ID:nHKG211084]

It is considering expansion in Europe, but has not yet settled on the right model to do so.