China's credit supply is set to hit a four-year high in 2006, despite a drastic decline in October, the People's Bank of China, the nation's central bank, said on Monday.

Central bank figures show that the country's banks granted loans totaling 2.777 trillion yuan (352 billion U.S. dollars) in the first ten months, far exceeding the annual goal of 2.5 trillion yuan set at the beginning of the year.

The credit supply increased at a monthly rate of 300 billion yuan over the first nine months of the year. At that rate, the total loans in 2006 will surpass the record 2.8 trillion yuan granted in 2003.

The central bank attributed the robust growth to local governments' appetite for large-scale investment which is still huge despite the central government's new macro-control policies aimed at calming excessive lending.

In addition, the incentive for commercial banks to issue loans was strong after the central bank raised the interest rates for loans in April, but not that for savings.

The month of October saw a drastic slide of new loans to a mere 17 billion yuan but industry sources said October had always been the lowest month because it is the first month in the fourth quarter, and includes the seven-day National Day holiday.

"This is only a temporary phenomenon. It does not reflect the real demand and probably will not continue into the last two months of the year," said Zhao Peng, president of Anhui provincial branch of the Industrial and Commercial Bank of China.

Records show that in October 2005, the total amount of new loans was only 26.4 billion yuan, but it bounced back to 225. 1 billion yuan a month later.

Even though the authorities may tighten credit supply further in the last two months of 2006, industry sources said they believe a four-year high in new loans is inevitable.

Source: Xinhua