CHINA'S CENTRAL BANK DRAFTS TIGHTER RULES FOR LENDING

CHINA'S CENTRAL BANK DRAFTS TIGHTER RULES FOR LENDING

China's central bank has drafted rules to force debt-laden state-owned banks to tighten lending controls, setting credit ratings for the first time, an official of the People's Bank of China said.

''The main objective of the rules is to improve management of bank loans and offer security and protection to both lenders and borrowers," said the official, who declined to be identified.Under the rules, effective soon, loan applicants must repay both capital and interest, he said.

For years, China's state-owned banks have offered credit to state firms based on policy needs, not commercial considerations, acting as a government lending arm regardless of risk and accumulating enormous non-performing debts.

Banks now would give priority to companies with high credit ratings and arrange only limited loans to firms with low ratings, the central bank stipulated.

A rating system would be introduced on bank lending under which officials would assess companies on business strength, leadership, capital structure, efficiency and prospects, the bank said.

The rules would outline penalties to non-performing debtors and assure the rights of creditors, Xinhua news agency said.

The draft of the experimental rules would become law in 1996 if they proved effective in nationwide trial schemes, the bank official said.

Officials have said that three of China's big four state-owned banks were running at a loss in the first half, and their rate of bad assets was well above 15 percent.