Chinese Banks Stop Lending Due To Liquidity Freeze

Tyler Durden's picture

If one thought the schizophrenic lies out of Europe between 2010 and 2013 were bad enough (the bulk of which it now appears were orchestrated by Mario Draghi), here comes China, a country which already has a "credibility" issue so to say, which has no choice but to lie as blatantly as possible in order to preserve some semblance of stability. The reason: as first forecast here months ago, and as has subsequently materialized, the credit/liquidity collapse in the country that lives and breathes on credit creation (the bulk of which is created in the shadow banking system) is rippling through the banking sector and causing unprecedented fallout for a financial industry that is already starved for every marginal yuan (and in a Keynesian "credit=growth" world, the economic crush is just waiting beyond the next corner).

Not unexpectedly following news that various retail and online banking services had been impaired in the early part of the week at China's biggest banks, now Caixin reports that banks are simply shutting lending to both businesses and individuals.

From Caixin:

A number of banks have temporarily halted lending to businesses and individuals apparently due to mounting pressure from liquidity shortages.

 

They include some branches of Bank of China (BOC) and Industrial and Commercial Bank of China (ICBC), sources from the two banks said.

 

The bank was already having a hard time keeping up with deposit-to-loan ratio requirements even before the liquidity shortages hit, not to mention executives' recent determination to sort out the bank's liquidity management and control loans.

 

BOC plans to resume lending on July 15, he said.

 

As for ICBC branches, the amount of loans they can make is routinely capped under a monthly limit set by headquarters, a source from the bank's Shenzhen branch said. It was not unusual for branch banks to reach lending quotas before the end of month, he said. What was rare, however, was that headquarters had cut down on the quotas to make room for its own operations.

 

"All of our loans have been put on hold," the source said, "There may be some credit line when it comes to July, but it will definitely be used up in a few days."

 

* * *

 

The tightened liquidity, which started about June 6, has affected the interbank market, stock market, government bond underwriting and securities refinancing operations.

 

On June 23, ICBC customers had trouble using its online, counter and ATM services. This included making withdrawals and paying bills. The same thing happened to BOC users a day later.

 

The two banks responded by saying the disruptions were caused by system upgrades. However, users of China's Twitter-like weibo services were not convinced the problems were unrelated to the banks' liquidity situations.

 

A source from Agricultural Bank of China said there was no need to worry about large banks.

Luckily in China sources never lie. And neither does the PBOC, which recently said liquidity is ample, and that banks "are fine." In the meantime, anyone needing a loan to engage in business, and grow the Chinese economy at its just as laughable 7%... come back tomorrow.

And anyway, it's not the loan halt that is an issue for banks. It is when they have to do the same to deposits. The good news at least for now, is that the Chinese population hasn't figured out that as the PBOC undergoes an ad hoc $1 trillion deleveraging, a like amount of deposits will be impaired. But just like Russians in Cyprus, they will. Eventually.