Tuesday, March 11, 2008

China Merchants says exempt credit cards from caps

China Merchants Bank has proposed to the central bank that credit cards be exempted from caps on lending by financial institutions, its president, Ma Weihua, said on Friday.

The initial reaction of the People's Bank of China was favourable, indicating it would consider the idea seriously, he said.

The central bank, concerned about inflation and rocketing money growth, has tightened the screws on new credit over the past four months and has placed strict quarterly ceilings on lending by commercial banks this year.

That has posed a serious obstacle for Merchants Bank, China's top credit card issuer, Ma told a small group of reporters.

"If we increase our credit card customers, we'll have to reduce our regular loan business," he said.

Ma said China needs to promote the use of credit cards to boost domestic consumption, which the country's leaders have long stated as a crucial economic goal.

"We have discussed this with the central bank and they think it makes sense," he said. "They will pay attention to this."

He said he had made the proposal on excluding credit card lending from overall loan controls "in the past few days".

His proposal is consistent with the government's avowed intention to steer bank lending away from polluting, energy-intensive industries and towards the service sector and smaller firms.

Merchants Bank had issued more than 20 million credit cards by the end of last year, accounting for about one-third of the domestic market.

Among Chinese lenders, Merchants Bank widely receives top marks from analysts for its retail banking services, partly due to its leading position in card services, although cash is still overwhelmingly preferred for most Chinese retail transactions.

Asked whether the lending crackdown had dented the bank's business, Ma said:

"It hasn't affected us yet because it's just the start of the year. We're still making adjustments to the macro controls."

He added that China's declared tight monetary policy gave banks a healthy impetus to cut their reliance on loans and instead develop other business lines, including insurance.

Ma was speaking on the sidelines of meetings of the National People's Congress, China's largely rubber-stamp annual parliament.

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