Banks anticipate weaker Chinese economy

Foreign banks and the Chinese government brace themselves for the inevitable economic slowdown.

Banks such as BNP Paribas SA, Nomura Holdings Inc. and UBS AG forecast weaker economic expansion in China in the first quarter as Europe’s debt crisis crimps export demand and the property market weakens.

Chinese banks released 7.5 trillion yuan in new loans in 2011, a drop of about 5% year-on-year, said the People’s Bank of China, the central bank. The decrease came after the government tightened monetary policy to cool inflation.

Ma Jiantang, head of China’s National Bureau of Statistics, said China is prepared for an economic slowdown and added that a mild moderation is “desirable,” according to Business Week.

The central bank, however, will allow the five biggest lenders increase first-quarter 2012 lending by a maximum of about 5% from a year earlier, according to informed sources in the government.

On the other hand, the China Banking Regulatory Commission is delaying implementing the most stringent capital adequacy ratios and may lower risk weightings for loans to small businessmen and companies.

The proposals signal that China’s policy makers are under pressure to ease credit after economic growth slowed to 8.9% in the fourth quarter. The central bank last December cut the reserve requirement for banks for the first time since 2008. Relaxing the capital rules may allow banks to provide more loans without having to raise funds from equity or bond sales.

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