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China hopes that last week's interest rate cut will increase lending into the economy to shore up flagging growth, but measuring any rise will be impeded by a number of tricks the country's bankers use to manipulate the figures.
Chinese banks, which are heavily controlled by the government, are often instructed to match their lending practice to further official policy, and when the People's Bank of China (PBOC) cut rates for the first time in two years on Friday, it made clear that helping smaller firms gain access to credit was among its goals.
Outstanding yuan loan growth slipped to its slowest in almost nine years in October, and the PBOC's efforts might well succeed in raising the headline figures, but bankers say it is commonplace to game the statistics to hit targets.
One trick is to extend a loan but then ask the borrower to use a portion of the fund to purchase wealth-management products sold by the bank, helping to hit both loan goals and sales targets.
Another technique is to require a portion of the money lent - anywhere between 30 and 40 percent, according to bankers - returned as deposits, so it can earn interest on the whole loan, while effectively retaining part of it.
"It's just internally generated business through a dummy counterpart," said Jimmy Leung, banking and capital markets leader and partner at PwC China.
The banking regulator has said these practices are illegal but say only "some commercial banks" engage in them. Bankers say manipulation is still rampant.
"It's very common," said a banker at a major state-owned bank who declined to be identified.
Step-up in policing
As the world's second-biggest economy heads for its slowest yearly growth in 15 years, authorities have been stepping up efforts to reduce the cost of financing for small and medium-sized enterprises, which included instructions from China's cabinet to "prevent the illegal diversion of loans and ensure that loan funds flow directly to the real economy".
In early September, the China Banking Regulatory Commission posted a notice asking banks not to "use underhand measures to illegally attract and falsely increase deposits".
But bankers say the efforts are slow and ineffective and have done little to curb the practices.
Another banker said agreements to return some of the loan as deposits have now become verbal, as opposed to being written into loan documents previously.
"The CBRC is feeling the stones to cross the river ... but bankers have already reached the other side," he said.