Banks in China lent 1.39 trillion yuan (US$203 billion) of new credit in January as they granted more loans in anticipation that the government would tighten monetary policies.

The amount of new yuan loans issued in January was more than the total given out in the previous quarter as banks rapidly granted credit in the first two weeks of January ahead of a possible central bank tightening measures.

But the new credit extended in January was 14 percent, or 224.3 billion yuan, lower from the same month a year ago, the People's Bank of China said on its Website yesterday.

M2, the broadest measure of money supply, jumped 26 percent in January.

"The January new credit data together with a lower-than-expected inflation trim the possibility of a quick hike in interest rate," said Tommy Xie, an OCBC Bank economist.

The Consumer Price Index, the main gauge of inflation, rose 1.5 percent in January, down from a 1.9 percent rise in December.

"January is a traditional month for banks to front load credit," said Lu Zhengwei, an Industrial Bank senior economist. "Lending always surges in the first quarter of each year. But the January credit is still within control."

Banks are set to slow their lending for the rest of the year as China tightened its monetary policy because loans surged in the first two weeks of January, economists said. The target for new yuan credit is 7.5 trillion yuan this year.

Banks in China extended a record 9.59 trillion yuan of new yuan credit in 2009, almost doubling the 5 trillion yuan target set for last year.

The new credit was reported to top 1.45 trillion yuan in the first 20 days of January, pushing the PBOC to curb liquidity. It raised the bank reserve ratio, increased the issuance rates on central bank bills and limited bank lending through guidance.

Earlier this month, Fitch Ratings warned that Chinese banks face the greatest "bubble risk" of any Asian country and downgraded ratings on two mid-sized domestic banks.

"Credit growth of over 50 percent over a two-year period in an economy where credit is quite large relative to gross domestic product almost inevitably involves some misallocation of credit," it said.

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